Global private equity sat on an estimated $2.59 trillion of uninvested capital in December 2023[1], a further increase from the year before. However, despite global economic and political challenges, we saw an increase in the number of offers made last year by buyers backed by private equity or other funds (“P2Ps“).
Of the 57 firm offers made in 2023, 36 were P2Ps (63%), compared to approximately one-third of firm offers made in 2022. A perceived undervaluation of UK public assets (relative to private sale expectations) may well account for the increased interest, particularly for overseas PE/sponsors.
30 of the 36 P2Ps were all-cash offers, five were cash offers with an alternative offer (loan notes or shares) at the election of target shareholders, and one was a cash plus loan notes offer. Therefore, whilst stub equity alternative offers continue to be used, cash remains the consideration of choice. We typically see stub equity offered to bridge a valuation gap between the target board and the bidder or, as was the case with the offer for DWF Group plc, to give existing target shareholders the opportunity to remain invested in the future growth of the target’s business.
As can be seen in the earlier graph (2023 in numbers: Breakdown of firm bids by deal value), large-scale public M&A fell last year, with only four of the 57 firm offers having a deal value over £1 billion (down from 13 in 2022 and 21 in 2021). It is notable that three of those offers were P2Ps, with the fourth an offer by a company owned by an individual. If large-scale offers are to make a return in 2024, it is likely that PE/sponsors will have a big role to play.
We expect P2Ps to continue to be popular in 2024, particularly in the small and mid-cap bracket and for technology and healthcare companies listed on AIM, with PE firms continuing to be on the lookout for quality UK assets with growth opportunities, at a time when boards of UK plcs are dealing with an equities market still on hold, and expensive third-party borrowing caused by relatively high (but stabling) interest rates.
[1] S&P Global Market Intelligence
