The Growing Popularity of Public-to-Private Transactions

In the face of a global slowdown, European public-to-private (P2P) transactions increased 43% YoY in the first half of 2023, as tracked by Mergermarket at the end of June. P2P transactions almost matched IPOs in 1H23, totalling 53 and 57 transactions respectively.

It is likely that these transactions are being driven by the global correction in valuations. 2021 saw a record number of companies (particularly technology companies) IPO, often listing at valuations which quickly dropped as the hype failed to attract equal investor interest.

Private equity investors are also seeing discrepancies in valuation expectations which has slowed dealmaking in 2023. As valuations have cooled, many management teams are cutting back on spending and holding out in hopes they can improve their prospects next year.

While public market investors lose interest in listed companies, private equity investors are looking to P2P transactions to fill out their deal flow. Companies which were priced too steeply for some investors pre-IPO can now be acquired at a discount, making them very attractive.

Current P2P interest, however, does not just provide opportunities for recently listed companies. With the 2023 spotlight on P2P, small-cap businesses which have also seen lacklustre stock performance in recent years may find they are better placed with a private equity investor.

A P2P transaction with the right investor can provide strategic benefits, either through industry connections or management support, and can open avenues for new investment in the business. Moreover, private investors are generally more supportive of turnaround opportunities to create value in a business where public market investors operate over shorter timeframes. A P2P deal is also an opportunity for management to gain a larger stake in the business.

Listed companies and private equity investors alike can explore the mutual advantages of P2P transactions in a time with a plethora of opportunities in the market.