Buyout bosses prepare for fresh FTSE binge

Private equity firms are readying themselves for another spate of public-to-private deals after the summer lull in activity.

London’s listed companies will be among the targets for buyout bosses when they return from holiday next month, according to senior industry figures.

Searchlight Capital, which has already agreed to acquire two FTSE firms this year, is among the investors on the hunt for new acquisitions.

“We have more public to private deals that we’re looking at in the UK, Europe and US,” said Oliver Haarmann, a founding partner of Searchlight, which has inked take-privates of asset manager Gresham House and global event organiser Hyve in recent months.

He told Private Equity News: “Everyone talks about the public markets having bounced back and being expensive again, but that’s when people are looking at the indices, which are often driven by large cap stocks. When you look at small to medium sized companies, a lot of them are still at quite low valuations.”

Anuj Ranjan, president of Brookfield’s private equity business, recently said that there is a “huge space” in the deal pipeline for more public-to-private deals.

READ MORE: Brookfield’s Anuj Ranjan sets out his market outlook

In June Brookfield struck a £2.2bn deal for FTSE 250 payment processor Network International Holdings.

In the same month, Swedish private equity giant EQT agreed to buy FTSE 250 veterinary drug company Dechra Pharmaceuticals, valuing the company at roughly £4.46bn in one of the largest deals in Europe so far this year.

Ranjan said: “Today people now have accepted the reality of where the stock markets are. They’ve accepted interest rates are here for longer, and valuations have therefore corrected.

“The public markets are more accepting of that reality, so you can get deals done in the public markets, both through public-to-privates but also through corporate carve outs.”

But it is not just large-cap companies attracting the attention of buyout shops.

Searchlight’s Haarmann explained: “If you’re a small listed company, by definition you don’t have a lot of float to offer investors liquidity. Your existing shareholders aren’t happy due to illiquidity. Your management team gets frustrated because their share incentives and compensation does not reflect positive operational improvements.

“In addition, management spends disproportionate amounts of time and energy managing quarterly earnings reports rather than focusing on longer-term value creation. And lastly, if they want more capital to buy a competitor, or grow more aggressively, they’re struggling because the investor base is not enthusiastic enough to support.”

To contact the author of this story with feedback or news, email Sebastian McCarthy

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