The Private Equity Takeover Hunt Ramps Up With $20 Billion Deals

Private equity investors have resumed their search for bargains in Europe's public markets, with roughly $20 billion in prospective takeover offers appearing in the last two weeks alone.

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EQT AB is in discussions to purchase Dechra Pharmaceuticals Plc for £4.6 billion ($5.7 billion), which would be the largest take-private transaction in the UK this year. The proposed purchase was revealed Thursday, only hours after another London-listed company, Network International Holdings Plc, verified on buyout interest from CVC Capital Partners.

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The next day, Blackstone Inc. announced a formal deal to purchase urban warehouse owner Industrials REIT Ltd. for £511 million. Meanwhile, Apollo Global Management Inc. has been in negotiations with John Wood Group Plc about a revised buyout offer of £1.7 billion for the Scottish engineering firm.

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"Every time we see values decline, PE is there to examine," Miguel Hernández, chief executive officer of investment banking at Alantra Partners SA, said by phone Friday. "Listed company valuations are pretty appealing presently, particularly for mid-sized and small-cap corporations."

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There are also hints of a rebound in private equity activity in continental Europe, where Cinven has proposed a €2.2 billion ($2.4 billion) takeover of German laboratory operator Synlab AG. According to EQT, Permira, Nordic Capital, Thoma Bravo, and KKR & Co. have been looking into Temenos AG, the Swiss banking software provider that has requested further expressions of interest.

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A private equity spending binge in Europe would help to revive the region's sluggish dealmaking sector in 2023. The record-breaking surge in mergers and acquisitions that lasted until Russia's invasion of Ukraine last year was driven by acquisitive buyout companies.

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Geopolitical tensions and macroeconomic uncertainty caused by increasing interest rates and the fear of recessions have resulted in an almost two-thirds reduction in transaction prices since then. Private equity businesses, in particular, have seen their purchasing power reduced by tightening funding markets as banks reduce lending on leveraged transactions.

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Problems with Financing

"With Europe's financing circumstances so tight, larger private equity firms frequently take companies private with all-equity deals then leverage them subsequently," Hernández explained.

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To be sure, firms like Dechra, Network, and Wood Group have yet to accept private equity bids. Nonetheless, other advisers believe that indicators of more realistic pricing expectations among sellers point to a bright future for take-privates.

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"For quite some time, boards' valuation expectations have been high since they have typically believed the market has undervalued the shares." "As a result, P2Ps were frequently discounted as being overly opportunistic, even at high premia," said Kate Cooper, an M&A partner at Freshfields Bruckhaus Deringer LLP.

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Several companies have now updated the market on their profits and prospects, and some boards now consider deals more acceptable after adjusting to a "new normal on value," she added.

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