Are Public-to-Private Transactions On The Way Out?

By Mani
Updated on

Despite the fact that public-to-private transactions have been down this year, it’s incorrect to conclude that this type of buyout is dead, suggests Preqin’s recent report. Preqin in its October 2014 report titled “Billion-Dollar Question: Are Public-to-Private Transactions on the Way Out?” notes that these transactions occur opportunistically.

Upswing in PE-backed buyout deal value

The Preqin report points out that since 2009, there has been a year-over-year increase in aggregate private equity-backed buyout deal value. Notably as of 2014 YTD, deal value has touched $249 billion for the year and still has the potential to eclipse 2013’s $296 billion.

As can be evidenced from the following graph, the buyout industry is still far from matching the market highs of 2006, when the aggregate deal value touched $682 billion.

The report highlights that favor for buyout investments will continue into the next year, with 75% of private equity investors indicating that they will be making commitments to buyout vehicles in the next 12 months, up from the 69% of investors echoing the same sentiment for their investment plans last year. To satiate this substantial investor appetite, fund managers are continuing to raise buyout vehicles to satisfy the demand. As set forth in the following graph, there are currently 247 buyout funds in market, targeting $189 billion in aggregate capital commitments.

PE buyout funds-Geography focus Public-to-Private Transactions

Public-to-private deals garner 49% of value

According to the Preqin report, public-to-private deals that characterized private equity’s last peak in 2007 made up just 4% of all PE-backed buyout deals by number. However, in terms of value, they constituted 49% of aggregate deal value, translating into a sizable $331 billion.

As can be deduced from the following graph, public-to-private deals have fluctuated since then, in both volume and value, although they haven’t touched the peak achieved in 2007:

Fluctuating PE-backed Public-to-Private Transactions acquisitions

Slicing the data further, the Preqin report points out that North America has witnessed the largest proportion of public-to-private deals from 2006 to 2013, averaging 58% of deal volume. Asia witnessed the most substantial increase, garnering the largest share of number of public-to-private deals of all regions and has claimed its highest share (42%) of public-to-private transactions to date.PE-backed acquisition by region Public-to-Private Transactions

Turning its focus towards the largest deals, the Preqin report points out that the largest public-to-private transaction of this year was the acquisition of the Chinese gaming company Giant Interactive Group Inc (ADR) (NYSE:GA) by Baring Private Equity Asia, CDH Investments and Hony Capital for $3 billion. The following table captures the largest PE-backed public-to-private transactions globally, 2014YTD:

Largest PE-backed Public-to-Private Transactions deals

The Preqin report also highlights that even though the buyout market continues to gain in strength, recent industry and market changes are making public-to-private deals harder to execute today than in previous years. However, the report concludes that despite its drop this year, it is incorrect to conclude that public-to-private buyouts are dead since the majority of these transactions occur opportunistically. Hence, the report notes that it will be difficult to predict when and how such deals will materialize.

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