PE Buyers Still Aren’t Taking Many Companies Private by Garrett James Black, PitchBook

Through the end of June, financial sponsors accounted for only 23% of 2016’s take-private transactions across North America and Europe. And this isn’t necessarily a result of overall public-to-private activity diminishing either, since strategic buyers logged 77 such deals in 1H, already 66% of 2015’s total.

Public-to-private transactions by acquirer type

PE Buyers

As strategic buyers have upped their activity and relative proportion, financial buyers have decreased theirs, largely as a consequence of the M&A boom and still-elevated market levels.

Valuations have been propped up for some time now—even amid periods of volatility—by a combination of minimal growth in a handful of major economies and accommodative monetary policies, among other factors. Thus, even as the tide of M&A has begun to recede, as is natural in the wake of a highly active period, financial buyers still do not have compelling reasons to engage in the public playing-field, by and large, as it simply is still too rich for their blood.

In addition, there are few public targets that justify both the scale of expenditure required, and even fewer private equity firms that boast the needed operational expertise and dry powder.

A few take-private acquisitions by financial sponsors stand out all the more, such as Vista Equity Partners’ announced purchase of Marketo. More worthwhile targets are to be found downstream, where PE firms’ typical investment theses make all the more sense, thus the ever-increasing concentration of activity within the bounds of the middle market.

Note: This column was previously published in The Lead Left

The data used in this story came from PitchBook’s 2Q M&A Report, which is available for free.