PE is spending more than ever on take-private add-onsAugust 2, 2018
No more. In recent years, both the size and frequency of take-private add-ons has picked up. And the growth is exploding so far in 2018.
With the massive $21 billion acquisition of Dr Pepper Snapple leading the way, investors have already spent more than $30 billion on take-private add-ons during 2018, according to PitchBook data, more than in any full year since at least 2006. That cash has been spread across 14 investments, on track to come very close to last year's total of 27:
The figures for 2018 work out to an average of more than $2 billion per deal, a stark contrast to not-so-distant history. As recently as 2014, the average size of take-private add-ons around the world was barely $350 million, about six times smaller than 2018.
The purchase of Dr Pepper Snapple by Keurig Green Mountain and backers JAB Holding and BDT Capital Partners is an obvious outlier. But considering such massive take-private add-ons were unheard of for such a long period of time—and that it comes in the wake of similar deals, like Apollo Global Management's takeover of ADT Security Services—it's also an indicator of a changing environment.
And the year has already brought a handful of other billion-dollar platform investments involving public companies. In July, Edelman Financial Services and owner Hellman & Friedman completed a $3.02 billion purchase of Financial Engines, a provider of investment advisory services. In February, meanwhile, Roark Capital added Buffalo Wild Wings onto Arby's in a nearly $2.5 billion expansion of its restaurant holdings.
One cause, surely, is the substantial stockpile of dry powder that exists throughout the private equity industry. Firms have to spend that money somehow, and the average size of buyouts of all types has also been on the rise in recent years.
More major take-private add-ons are in the pipeline, waiting to be finalized. In July, Apollo and portfolio company RCCH HealthCare agreed to purchase LifePoint Health for $5.6 billion—a move that's also an example of PE's ongoing consolidation of the healthcare space. In the financial services merger, meanwhile, The Carlyle Group and ION are seeking to finalize a take-private add-on of fintech company Fidessa worth some £1.5 billion (about $2 billion at today's conversion rate) that they agreed to in April.
Transforming targets & top investorsThe past dozen years have brought another gradual shift in the makeup of take-private add-ons: These days, the companies firms are targeting tend to have been publicly traded for longer. The median period of time spent on the public markets by take-private add-on targets was typically eight years or below during the second half of the 2000s. So far this year, it's at 12.75 years, the second-highest total in recent history:
Combined with the larger trend of take-private add-ons, this presents something of a chicken-or-the-egg conundrum: Has PE been targeting companies that are more mature and thus been spending more money, or have firms sought pricier deals and thus been drawn to older targets?
As you might expect when it comes to deals that are typically worth hundreds of millions of dollars, the firms that conduct the most take-private add-ons are among the industry's biggest names. Here's a look at the 10 investors that have completed the most such deals around the world since the start of 2006:
Check out our 2Q 2018 US PE Breakdown for more data and trends.
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