Take-private activity headlines Q1’s private equity M&A: PwC

Private equity firms will likely continue harvesting deals from the public markets as take-private activity continues to increase, according to a recent PwC Deals Insights report.

Take-private transactions grew just shy of 50 percent in Q1, while the value of the deals more than doubled, to $23.1 billion from $11.1 billion, from Q1 2018, PitchBook data show.

The recent contraction in public-market multiples and continuing expansion in buyout multiples make take-privates potentially more attractive, Andrew Cristinzio, U.S. PE-sector leader at PwC, told Buyouts.

“What we saw was the stock market has pulled back a little bit [and] the ideas that have been formulated over the past several months or years went into play,” he said.

The $6.9 billion acquisition of Dun & Bradstreet and the $5.2 billion leveraged buyout of Sears Holdings by ESL Investments were the biggest take-privates in the first quarter.

Even as equity markets stabilized since the start of the year, any reversion would continue to make take-privates favorable for PE firms, the report said.

Unlike in 2006 and 2007, when more private equity firms grouped for large club transactions, in 2019 large funds are quicker to take companies private as single sponsors. This quarter, some buyouts were done through firms’ portfolio companies that grew large enough to transact a public company.

Alternative structures, including take-privates, carveouts, and recaps, will continue to be relevant in the high valuation environment, according to Cristinzio. More creative structures have become available as private equity funds have grown larger and more global, he said.

“It’s not only the financial play; the private equity firms have means and value to create a financial solution … [and] be broader in terms of the mandate, private to private, minority, take-private, etc.,” Cristinzio said.

Overall, deal volume and value decreased by 28 percent and 27 percent, respectively, for the first three months of 2019 from the year-earlier period, according to the report.

Action Item: To see full the report, click here.