Private equity firms are back scouring Europe’s public markets for bargains, with nearly $20 billion of potential takeover deals emerging in the last few weeks alone.
(Bloomberg) — Private equity firms are back scouring Europe’s public markets for bargains, with nearly $20 billion of potential takeover deals emerging in the last few weeks alone.
EQT AB is in talks to buy Dechra Pharmaceuticals Plc for £4.6 billion ($5.7 billion) in what would be the UK’s biggest take-private this year. News of the possible transaction emerged Thursday just hours after another London-listed firm, the £1.6 billion payments processor Network International Holdings Plc, confirmed Bloomberg reporting on takeover interest from CVC Capital Partners.
Blackstone Inc. then announced a final agreement Friday to acquire urban warehouse owner Industrials REIT Ltd. for £511 million. Apollo Global Management Inc. has separately been in talks with John Wood Group Plc over an improved takeover offer of £1.7 billion for the Scottish engineering company.
“Every time we see valuations fall, PE is there to analyze, and that’s what we’re seeing now,” Miguel Hernández, chief executive officer of investment banking at Alantra Partners SA, said by phone Friday. “Valuations of listed companies are quite attractive now, particularly for mid-sized and small-cap firms.”
There are also signs of a revival of private equity activity in continental Europe, where Cinven has made a proposal to take over German laboratory operator Synlab AG in a roughly €2.2 billion ($2.4 billion) deal. Bloomberg News reported last week that EQT, Permira, Nordic Capital, Thoma Bravo and KKR & Co. have been looking at Temenos AG, the Swiss banking software developer that’s asked for fresh expressions of interest from suitors.
A private equity shopping spree in Europe would go some way to reviving the sluggish market for dealmaking in the region in 2023. Acquisitive buyout firms had been a driving force behind the record-breaking run in mergers and acquisitions that lasted until Russia’s invasion of Ukraine last year.
Since then, geopolitical tensions and macroeconomic uncertainty stemming from rising interest rates and the threat of recessions have led to an almost two-thirds drop in deal values. Private equity firms, in particular, have seen their buying power impacted by difficult financing markets, which have become constricted as banks curtail lending on leveraged transactions.
Financing Difficulties
“With financing conditions in Europe so difficult, bigger private equity firms often take companies private with all-equity deals, and leverage them later,” Hernández said.
To be sure, companies like Dechra, Network and Wood Group have yet to accept offers from their private equity suitors. But some advisers think signs of more realistic price expectations among sellers hint at a favorable outlook for take-privates going forward.
“For quite some time, the expectations of boards have been high in valuation terms as they have generally considered the market has undervalued the shares. So P2Ps were sometimes dismissed as looking too opportunistic, even at significant premia,” said Kate Cooper, an M&A partner at law firm Freshfields Bruckhaus Deringer LLP.
Many firms have since updated the market on their earnings and outlook, and after adjusting to a “new normal on valuation,” some boards now consider transactions more palatable, she said.
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