UK Take-Privates
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Equity Sights

Private equity take-privates of UK listed companies have been on a rollercoaster course since the COVID-19 pandemic. After a surge in activity in 2021 as global private equity activity recovered sharply, 2022 presented a more mixed picture due to renewed concerns about global growth in the light of rising interest rates and spiking inflation. Now, in 2023, private equity firms are renewing their interest in UK PLCs, focusing efforts on undervalued mid-sized companies where boards are dissatisfied with current valuations and see the benefits of a period of transformation under private ownership.

UK Take-Private Equity Surges Then Slows

The value of UK take-privates surged almost to £29.3bn in 2021, more than seven times the total achieved the previous year, and significantly ahead of the pre-pandemic level, according to BDO data¹. At £7bn, Clayton Dubilier & Rice’s buyout of supermarket chain Morrisons was the largest of the year, with other notable takeovers including the £3.3bn takeover of Signature Aviation by a sponsor consortium.

The sharp and rapid hiking of interest rates from early 2022 onwards curtailed take-private activity in 2022, as the outlook for companies became more uncertain and banks cut back lending to leveraged buyouts. The scale and number of UK public company takeovers reduced sharply, with Triton’s £1.3bn takeover of pharma services group Clinigen one of the largest of 2022 alongside Hg’s buyout of compliance software company Ideagen for £1.1bn. Most notably, pursuit of take-privates slowed significantly from the first half to the second, with the number of firm offers for PLCs (from both private equity and strategics) falling by 50%, according to research from broker Peel Hunt².

Number of Firm Offer Announcements in UK M&A (2020-2022)

UK Take-Private Equity Surges Then Slows

Private Equity Remains Focused on UK PLC

Throughout the market turmoil of 2022, private equity firms remained focused on potential UK buyouts. According to a survey from UK stockbroker Numis, 73% of UK private equity professionals were focusing their pipelines on UK-listed stocks, while 92% were actively looking into take-privates³. International buyers benefitting from the strong dollar and weak pound have also kept a close eye on the arbitrage opportunities. Since late 2022, we have seen an increase in inbound inquiries from U.S. bidders and private equity firms interested in UK-listed companies and how to potentially structure bids. However, the retreat of the debt markets, and an increased focus on antitrust and FDI considerations, tempered the rate of execution.

Much of private equity’s renewed focus has been on mid-cap companies which remain undervalued relative to their larger peers. The FTSE 100 achieved a new record high above 8,000 points in February and, despite since retreating, was almost 5% above where it started 2022 by March 2023. In contrast, the FTSE 250 index was some 17% lower than its 2022 starting point and 20% below its 2021 peak, highlighting lower valuations and potential opportunities for private equity suitors. As a result, almost nine out of ten FTSE directors surveyed by Numis this year expect UK-listed companies to be vulnerable to takeovers⁴.

The UK-based organizer of international conferences and events announced that it had received a conditional and preliminary approach from Providence at 105 pence per share, valuing the business at roughly £306mn. Shareholders in the company, including Redwheel and Blackmore Investment Partners, argued that the offer did not fairly value the company⁵. The offer was at a premium to the recent share price, with Hyve trading at just 50 pence per share as recently as October 2022. However, prior to the pandemic, Hyve’s shares were trading in excess of 600 pence, with shareholders arguing that the company has greater intrinsic value not reflected in the current valuation.

Private Equity Looks for Welcoming Companies

While private equity bids for publicly listed companies are frequently branded opportunistic by boards and more activist shareholders, firms are expected to look for undervalued companies with strong fundamentals where their approaches will be welcome. Among those are businesses that have been through periods of private equity ownership in the past, as well as businesses where boards and management know that private ownership will be more conducive for implementing efficiency measures or operational restructuring.

Research from investment banking firm Canaccord Genuity, and cited in The Times, identified mid-sized companies including restructuring specialist Begbies Traynor, Bloomsbury Publishing, Hikma Pharmaceuticals, Moneysupermarket.com, Pets at Home and gambling software company Playtech, as potential private equity targets.

Given the current focus on smaller UK listed companies, take-privates may not reach the highs of 2021 again this year, at least in value terms. Nevertheless, depressed valuations, appetite from private equity firms both in the UK and internationally, and rising confidence in an improving outlook are likely to revive interest and activity, especially if the debt markets recover.

The Aberdeen-based energy sector consultant announced that it had received and rejected three approaches from Apollo. A fourth cash offer at 237 pence a share, valuing the business at about £2bn, was also deemed to be too low, although the company opened the door to negotiation, saying it was “minded to reject” the offer. Wood Group also said that it would continue to engage with shareholders, as well as Apollo “on a limited basis”. Shareholder Sparta Capital had called on Wood Group to buy back shares to lift its valuation as it was perceived to be vulnerable to a takeover.