Public M&A

Private Equity, public bids

Global private equity continues to sit on an estimated $2 trillion of uninvested capital¹. However, events in the debt markets in 2022 necessarily brought a slowdown in private equity investment, as a result of uncertainty on the cost and availability of borrowing. The number of public bids backed by private equity and other funds fell from over half of all bids in 2021 to approximately one third in 2022. In particular, we saw fewer bids from North American private equity buyers.

Absent further market turmoil, this disruption in M&A activity may well lead to a return to the competition for assets which we saw in 2021. In our view, there is still appetite from private equity firms to do public takeovers and we have continued to receive a steady flow of instructions from private equity sponsors, especially in the mid-cap bracket.

Public to private activity in 2022 was evenly spread between sectors, with financial and technology remaining the most popular. These sectors are likely to remain attractive, although if this year's trend towards consolidation continues, there may be competition with corporate bidders for assets.

Price formation remains a puzzle, as in previous years, with uncertainty around debt financing further complicating matters for private equity bidders. However, UK listed companies are still considered to be undervalued, and AIM shares performed particularly badly in 2022. If this trend continues into 2023, main market and AIM companies will be particularly attractive to overseas PE houses looking to leverage their currency advantage.

Premiums offered by private equity bidders, typically higher than those offered by trade bidders, fell in 2022 to an average of 39%, against an overall average for all bidders of 61%. This appears to be a product of the headwinds being negotiated by private equity, set against the drivers for consolidation between corporates, where multiples rose to a high of 188.5%².