Key takeaways

• As public markets investors overlook companies beyond the big technology stocks, PE firms are targeting listed businesses with often attractive valuations.
• Some businesses listed in the peak IPO years of 2020 and 2021 are returning to private equity hands as share prices have fallen and costs of being public have risen.
• Private credit has taken market share in funding these deals, with legacy finance arrangements adding to the attractiveness of take-privates.

Blackstone and Permira’s €14 billion acquisition of Norwegian online classifieds group AdevintaAllied¹ and Silver Lake’s $13 billion purchase of live sports and entertainment business Endeavor² are just two examples of a major private equity trend over recent years: public-to-private deals. 

The numbers

Public-to-private deals have always been in the private equity deal arsenal. However, recent volatility in public markets and private equity’s keen eye for relative value have prompted many buyout firms to look to unloved listed companies for dealflow.

Through September 2024, private equity take-private deal announcements in Europe and North America reached $132 billion, positioning this year to be one of the strongest on record for take-privates, surpassed only by the highs of 2021 and 2022, according to Pitchbook.³ 

This tallies with a Dechert survey conducted at the end of 2023, when 94% of private equity respondents said they were likely to consider take-private deals, up from just 13% a year earlier.⁴

The third quarter, however, saw fewer of these transactions in the US and Europe than the rest of the year, reflecting a pause ahead of November’s presidential election and a choppy August for public markets. Activity nevertheless remained busy enough.⁵ 

Deals such as KKR’s $4.8 billion take-private of edtech business Instructure, and Blackstone and Vista Equity Partners’ $8.4 billion deal to delist software business Smartsheet, were announced in Q3.

Spotlight on UK’s stock markets 

Among Europe’s larger deals was Thoma Bravo’s €5 billion take-private of UK cybersecurity company Darktrace⁶, illustrating a trend for delistings from the London Stock Exchange and the UK’s junior AIM market. The number of companies listed on the latter fell by 9% in the year to the end of March 2024. 

Meanwhile, many large companies, including travel group Tui, have either sought or are seeking listings elsewhere⁷, with many citing low valuations on the UK’s stock markets as a reason for departure.⁸ Absent any change on this front, it seems likely that more UK-listed companies will become targets for private equity buyers with an eye for value.

Large cap plays

The scale of many public companies means they tend to be targets for private equity’s larger fund managers. Correspondingly, most firms at the higher end of the fund size spectrum have been scouting stock markets for potential deals.

Among them is enterprise software specialist firm Vista Equity Partners, which has been particularly active in the take-private space. Since autumn 2022, the firm has been involved in six take-privates, including an $8.4 billion deal to buy tax compliance automation business Avalara,⁹ and a $4.6 billion purchase of education software company KnowBe4.¹⁰

In a recent interview, Vista's senior managing director Michael Fosnaugh explained the firm is seeing “opportunities to acquire great companies at reasonable valuations” as companies outside the Magnificent 7 tech stocks have fallen out of favour with investors since the correction in 2022.¹¹

Thoma Bravo has also been targeting public-to-private deals of late, with more than a dozen such transactions under its belt in the past two years, according to Pitchbook data. The Darktrace take-private is one example, as is US software company Everbridge, which Thoma Bravo announced it would delist in February in a transaction valued at around $1.5 billion.¹²

In a podcast highlighting Thoma Bravo’s 2020 acquisition of B2B payments company Bottomline, managing partner Holden Spaht explained the firm’s rationale and strategy for the deal: “The company was misunderstood in the public markets and needed a refreshed, simplified strategy that focused its energy on B2B payments and an assist when it came focusing on growth and profitability.”¹³

Why take-private deals?

Attractive pricing if you know where to look

Take-private deals demonstrate the flexibility of the private equity model. Firms tend to target these deals when stock market valuations are at odds with the overall environment and a company’s prospects. 

We see this today as public markets are increasingly concentrated in a small number of technology stocks. In the ten years to 2023, the weighting of the top 10 stocks of the US stock market nearly doubled to 27%, according to Morgan Stanley.¹⁴

With investor dollars so focused on largely tech giants, other high quality businesses are often overlooked and therefore likely to be undervalued. Private equity firms tend to target these listed companies with strong fundamentals and strong growth potential.

Public market investor focus on mega-tech stocks is part of the reason so many take-privates have involved software and technology businesses. However, private equity is also looking at other sectors. For example, MiddleGround’s delisting of hardware tool manufacturer LS Starrett earlier this year is firmly in the industrial camp.¹⁵

Greater valuations transparency 

As private equity dry powder continues to climb, the pressure is on for firms to deploy the capital they have attracted in recent years. As of July 2024, global private equity and venture capital funds had a record $2.62 trillion at their disposal.¹⁶

However, firms also face uncertainty around company valuations in the private sphere, which makes dealmaking a challenge. In a recent CMS/Mergermarket survey of private equity and corporate executives, vendor-acquirer valuations gaps emerged as the biggest obstacle to M&A activity in Europe over the next 12 months, with over a third placing it in their top two barriers.¹⁷

The transparency of publicly listed company valuations neatly side-steps this issue. They give buyout houses pricing visibility as they develop acquisition and value creation plans for potential take-private deals.

The rise of boomerang stocks

With 2021 the most active year for global IPOs in 20 years, the rush to go public just hasn’t worked out for some businesses as their share prices have dwindled post-listing in volatile markets.¹⁸ 

The pressure and cost of being a public company, plus the prospect of becoming a target for activist shareholders, mean that management teams of companies that listed only a few years ago may be well disposed to a private equity offer. 

Buyout firms, meanwhile, are spotting the opportunity to buy back companies they or their peers previously listed during the market peak at more attractive valuations. EQT’s take-private of German software group Suse in 2023 for a reported €2.7 billion¹⁹ was struck at a lower valuation than at its €5 billion launch.²⁰

In Q1 2024, over half of the 15 US middle-market companies delisting for less than $1 billion were businesses that went public in the boom IPO years of 2020 and 2021.²¹ The proportion of boomerang stocks for all take-private transactions in the same period was a quarter.²²

Silver Lake’s take-private of Endeavor is another of these boomerang stocks — it went public in 2021 after a period of Silver Lake ownership stretching back to 2012, with the firm retaining shares in the sports and entertainments business post-IPO.²³ Earlier this year, Permira took website software company Squarespace private in a $6.9 billion deal, three years after its 2021 listing. Pre-IPO investors General Atlantic and Accel still held 20% when the take-private was announced and are participating in the latest deal.²⁴

Meanwhile, cloud-based event management company Cvent has now become a double boomerang. Vista took the business private in 2016,²⁵ listed it in 2021, then two years later, Blackstone took Cvent private once more.²⁶

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