Private equity
Rise of the mega-deal With many major companies’ share prices eroded by a turbulent few years, the mega-funds are circling and recent deals suggest activity is increasing. But big isn’t always bad – and the rise in mega-deals may produce opportunities for other, smaller, players too
Words: Gill Wadsworth SO MANY OF the UK’s businesses are currently vulnerable to takeover that one former City minister has likened market conditions to a car boot sale. A look at the number of listed companies on the brink of being taken private, and with so many of them big names available at bargain prices, it’s hard to argue with the comparison. In the past few months, retail giants Asda and Morrisons have joined the growing list of UK PLCs that have become targets for private equity buyouts. Morrisons found itself at the centre of an aggressive bidding war between rival private equity companies intent on snapping up a supermarket stalwart that was carrying a depressed share price following years of Brexit negotiations and the pandemic. The UK is hot right now for private equity mega-funds intent on snapping up
46 August - October 2021
other household names similarly affected by Brexit and Covid. Further evidence can be found in the fact that the number of listed companies in the UK has fallen by around 40% compared with 2008, according to a review of listings by Lord Jonathan Hill, the former EU financial services commissioner. The UK government is now consulting on a series of recommendations put forward by Lord Hill’s UK Listing Review, which could further fuel PE activity. These include lowering the free float limit to 10%; reducing regulation around prospectus requirements; allowing dual-class share structures; and changing reverse takeover rules to encourage more SPAC listings. All of these measures are likely to encourage more PE-backed companies to tap the public markets.
BIG ISN’T NECESSARILY BAD While the prospect of more mega-funds, and their mega-deals, might sound hostile, such behemoths need not necessarily be considered as a wholly bad development.
There are straightforward reasons why mega-funds exist, not least their ability to give more access to a larger number of investors otherwise precluded from the private equity space. David Crosland, Guernsey Investment Funds Partner at law firm Carey Olsen, points out: “Private equity and other alternative investments have been the preserve of institutional investors, but there is a push among private investors to get into the class.” Add to this a desire from UK government to make it easier for the UK’s billions of pounds in defined contribution assets to be put into private equity and other illiquids, and there is a huge amount of dry powder waiting to be put to work – much of which looks set to find its way onto the books of the mega-funds. Crosland says: “Private banks are putting together vehicles to allow investors to invest in private equity. They can’t sell [retail customers] a fund they’ve never heard of. Instead, they go to the big names – Blackstone, Apax – which attracts even more money for the mega-funds.”
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