The number of publicly listed companies opting to leave the stock exchange and become private firms soared 40% last year, figures show.
According to public data analysed by the law firm Pinsent Masons, 28 businesses listed in London were snapped up by private equity firms in “public to private” deals (P2Ps) in the UK last year, up from 20 in 2018.
The value of deals more than doubled last year, to £21.1bn in 2019, up 113% from £9.9bn in 2018.
The £4bn buyout of defence group Cobham by US private equity group Advent International was the most high profile deal in a trend that goes back more than a decade for businesses to reject the stock market in favour of private ownership.
A P2P occurs when a private equity (PE) fund, or a consortium of private equity funds, acquires the shares of a listed company. Private firms have also baulked at joining the stock market, which is considered a route to broader investments from pension funds, international investors and individual savers.
According to data firm Dealogic, just 34 companies applied to be listed in the UK over the last year, the lowest number since 2009. The amount of money raised from new UK listings nearly halved compared with the year before to £3.7bn.
The decline in new listings and rise in the number of existing stock market listed firms quitting to go private is expected to accelerate a decline in the proportion of publicly listed companies, not just in London, but in most major stock markets.
Pinsent Masons blamed Brexit uncertainties for depressing the value of UK-listed firms compared to their European counterparts and making them more attractive to foreign buyers.
The rise in deals may also reflect management teams being more receptive to partnering with PE funds to take a company private, said the law firm. Managers may believe that public markets undervalue their companies and are therefore open to offers from PE funds, though a majority of shareholders must agree to any takeover bid.
Julian Stanier, a partner at the law firm said: “The speed at which companies are going private principally boils down to depressed share prices, low interest rates and the massive firepower of Private Equity.
“Attractive valuations have enabled PE funds to acquire companies with strong fundamentals at prices below recent norms. We expect to see this activity continue into 2020. A new government with a strong majority has further added to the attractiveness of UK companies,” he said.
Stanier said record-low interest rates in the UK and Europe made it cheaper to fund deals. Also, private equity funds were “sitting on large amounts of capital which they are under pressure to deploy”.
He said: “This has resulted in PE funds considering a wider range of opportunities in order to put investors’ money to work, including acquiring listed companies.”
