Take-privates back in fashion

Shareholders of Stada, Germany’s largest generic drugmaker, are currently mulling a revised offer to take the company private for just over €4.1 billion. The bidders, Cinven and Bain Capital, have the backing of the board and will know the fate of their attempted take-private by mid-August.

The Stada deal is one of a number of high profile attempted takeovers of listed companies by private equity firms in recent months.

In July, KKR agreed to acquire NASDAQ-listed health information provider WebMD in a deal valued at around $2.8 billion. This followed Sycamore Partners’ acquisition of listed retailer Staples for approximately $6.9 billion the previous month.

Take-privates have accounted for 21 percent of 2017’s private equity-backed buyouts as of 31 July, totalling $77.7 billion across 36 deals globally, according to Dealogic. This is compared with $59.8 billion of take-privates across 59 deals throughout 2016, representing just 9 percent of all financial sponsor-related buyouts.

“The large-cap sponsors have [historically] avoided public-to-privates where they’ve been able to do private deals because they feel the chances of success are higher in a private deal,” Stephen Lloyd, a private equity-focused partner at law firm Allen & Overy, tells Private Equity International.

“[There is now] an awful lot of money chasing a very small number of large targets. The public markets represent approximately half of all companies… so just ignoring that entire market as a potential source for asset acquisitions is something they can’t really afford to do anymore.”

In October 2016, HarbourVest agreed to acquire the investment portfolio of London-listed SVG Capital for £806.6 million ($992 million; €903 million). The deal had started out as a hostile attempt to delist SVG Capital from the London Stock Exchange and morphed into an agreement to acquire the company’s assets over time.

HarbourVest’s co-investment division has participated in 10 take-privates since 2015, of which seven were in the US, two in Asia and one in Europe. “If you manage to get support from the board you still don’t know if you’re going to prevail and get the support of shareholders, and so it can be a very costly, very time intensive process, without any guarantee that you will get a deal at the end,” Corentin du Roy, managing director at HarbourVest Partners, tells PEI.

A wave of these transactions may remind some people of the pre-crisis deal market, which was characterised by giant take-privates such as the $44 billion buyout of TXU Energy by KKR, TPG and Goldman Sachs in 2007 and KKR’s £11 billion buyout of pharmacy group Alliance Boots the same year. “In the London office we had the FTSE 50 up on a board,” remembered one strategy consultant during a conversation with PEI in March. “We were pretty much ticking them off as sponsors called us up to say: ‘a bank has offered us finance to take this company private, but we don’t know it terribly well’.”

But take-privates have not reached the heady heights of the previous decade. In 2006 and 2007, public-to-privates accounted for 39 percent and 35 percent of global private equity buyouts respectively, with deals totalling $333.5 billion and $329.7 billion.

At the time, banks were driving the transactions, said the consultant, but “nothing like that is happening at the moment”. Though big companies are being taken private, these are deals in which “sponsors have really done their homework and know exactly what they want to pay”.