How to Identify P2P Candidates

In September, Aalto commented on the increase in public-to-private (P2P) transactions seen in the first half of 2023. This trend has continued into the second half of 2023, and Mergermarket reports that the total number of UK P2P transactions this year is up 145.5% from 11 transactions in 2022 to 27 in 2023. Aalto anticipates it will continue to play a key role in the 2024 M&A market.

But how do you know if a business is a good take-private candidate? Many companies are currently seeing their stock perform poorly, so it is important to identify key take-private candidates which are not only suffering from wider market conditions but also a more long-term lack of interest

The first way to determine the suitability of a company is to look at its stock performance over the long term. If the trend has broadly followed that of the markets, then it is perhaps not in need of a transaction; however, if a business has seen a continued decline in price despite market trends, there may be a transaction opportunity.

How a business's revenue performance and profitability have influenced its stock performance is also key to understand. If a company has struggled to realise revenue growth or achieve profitability, then it may be in need of a new owner. A trend in recent years is for companies to raise money in the public markets before having significant revenue traction or reaching breakeven. Some of these companies have struggled to meet their targets since listing with bottom lines suffering from the additional costs associated with running a public company. These are ideal candidates for hands-on acquirors with established business processes. These businesses are also often open to M&A approaches since they are in need of capital to grow and cannot raise further funding in the public market. With the right capital and strategic support, these businesses can quickly deliver high returns.

Unloved companies which have strong revenues and profitability can also be found and may be a better fit for funds looking for a platform to execute a buy-and-build strategy. These companies have a track record of success but may not have shown much growth in recent years and need a fresh perspective to get them to the next level.

If you are interested in learning more about take-private opportunities or discussing a possible transaction, please feel free to reach out to Aalto Capital.