Cinven: PE will play larger role in aiding public companies post-covid-19

With more inflows into the PE industry expected in the next decade, firms can add more value to highly leveraged publicly traded companies, says Cinven partner Jorge Quemada.

Private equity firms are going to be a much larger source of funding for public companies in the next decade, a senior dealmaker at Cinven has said.

Jorge Quemada
Quemada: P2Ps will be an area of growth in the next 10 years

Speaking at the Spanish Venture Capital & Private Equity Association’s LPs and GPs conference on Tuesday, Jorge Quemada, a partner at the London-headquartered firm, said more private capital will be used for public companies that face financing issues as a result of the coronavirus pandemic.

“Private equity funds will be larger and larger, and they will be able to add more value,” Quemada said. “I do see many more transactions, public-to-private [deals] or PE firms taking a large investment in a public company or doing a joint venture with subsidiaries of a public company.”

The industry will see more of such transactions in the next five to 10 years than it has seen in the past, he added.

Cinven, KKR and Providence Equity Partners made a €2.96 billion offer in May to acquire Madrid-listed telecoms company MasMovil, according to a filing (document in Spanish) with Spain’s National Securities Market Commission. The trio will end up with an equal stake in the company when the deal goes through. It is the largest public-to-private deal in Europe since covid-19 spread globally in March, according to S&P Global Market Intelligence.

Among other high-profile public-to-private transactions that closed in the past year are KKR’s acquisition of German publisher Axel Springer for $2.9 billion, Advent International‘s £4 billion ($5.2 billion; €4.7 billion) takeover of defence contractor Cobham and a Blackstone Core Equity-led consortium’s acquisition of Merlin Entertainments for $7.5 billion.

Growth in European P2P activity has climbed over the past decade and has become a source of dealflow for PE firms. Data from Mergermarket show total deal value of European P2P at the end of 2019 reached €34.5 billion, up 14 percent from 2018 and higher than every other year since 2008. In the UK, P2P deal value hit €23 billion in 2019, more than double the €9.7 billion reached in 2018.

P2P deals, however, will be difficult to do in the short-term, according to Investec’s head of PE client group Christian Hess. A chief concern is that publicly traded companies have less visibility on revenues in the next two years as uncertainty about the pandemic continues. In fact, PE managers’ appetite for public-to-privates has waned since the start of covid-19, a study by Investec has found.

PE managers’ bullishness towards P2Ps has declined significantly – 14.3 percent of GPs in the survey thought P2Ps had 12 months or less to run before covid-19. Since the pandemic hit global financial markets, nearly double that number (27 percent) expect the trend of more P2Ps to reverse.