The public markets are shrinking.
Private equity firms are taking public companies private at a frantic pace. In fact, so-called take-private deals accounted for 81 percent of the value of all transactions in 2023, compared to the 20 percent seen in a typical year, according to the latest private equity report from Ernst & Young. Even in 2022, when take-private deals were on a record pace, they made up only 37 percent of the total value of transactions, according to EY.
“Over the last several quarters, the market has bifurcated, with one side defined by smaller transactions and the other by take-private deals that have dominated activity for transactions of significant size,” the report said.
The enthusiasm comes at a time when high-quality companies continue to trade at discount prices. “Because public market valuations adjust more quickly than in the private markets, PE firms continue to seek to take advantage of reduced valuations,” Pete Witte, EY’s global PE lead analyst, wrote in the report.
He added that the upward trend in take-privates underscores the degree to which firms are trying to stay disciplined, as well as the interest they have in finding opportunities to invest in high-quality assets that they believe are temporarily mispriced.
Total PE deal value reached $92 billion in the first quarter, significantly down from the $240 billion closed during the same period last year, according to EY. Of the $92 billion in transactions, about $75 billion represented take-private deals.
According to the report, the ten largest PE deals in the first quarter were all public-to-private transactions. Notable deals in 2023 include the $16.2 billion acquisition of Toshiba, led by Japan Industrial Partners; the $11.9 billion acquisition of the software company Qualtrics International, led by CPP Investments and Silver Lake; and the $8.2 billion acquisition of the chemical distributor Univar Solutions, led by the Abu Dhabi Investment Authority and Apollo.
The report also noted that PE firms tended to favor technology deals in the first quarter. About 50 percent of deals larger than $100 million occurred in the tech sector in the first quarter of 2023, up from 27 percent during the same period last year.
PE firms have been particularly interested in software companies that are focused on artificial intelligence and machine learning, according to EY. “We expect such deals to build further momentum and expand into the areas which are a confluence of tech and other core sectors, such as fintech and consumer-tech,” the report concluded.
