In an interesting speculation on the state of the private equity universe, Adam Lewis of private-equity data provider Pitchbook is out with an interesting look take on the “take-privates” activity. In particular, he speculates that the take-private activity will spike in 2019.
Some Background
Before getting into the reasons why take-private activity could spike in 2019, let’s first address what a take-private is. In the world of finance, there are public companies and private companies. Public companies trade on transparent exchanges. These companies tend to be larger in size with liquid supply and demand for their stock.
By contrast, private equity – which can also be quite large at times – are companies where stock is generally closely held individuals or entities. The company is private because one can’t simply go to an exchange and buy stock in the company. Instead, if an investor is interested in owning shares in a private company, he must offer to buy into the private company. The prices at which shares trade hands in private companies are generally not public information.
So, Why Could Take-Private Activity Spike in 2019?
With this background in mind, why would take-private activity spike in 2019? The Pitchbook blog writer offers really one reason, although a second is mentioned here.
First, according to Pitchbook analyst Wylie Fernyhough, the number of take-privates grows in tandem with deal sizes. And 2018 saw massive deal sizes. Because of this, one might expect take-private deals to spike in 2019.
“For proof, the median take-private deal size in 2018 was $977 million as of November 30, while the median deal size for other non-take-private buyouts checked in at roughly $175 million. And top-dollar buyouts are only increasing. There have now been more than 70 buyouts of $1 billion or more in the US in two consecutive years for the first time ever, and the number of mega-funds closed over the past three years is more than any period on record.”
Second, given the recent route in equity markets, price-to-earnings ratios are down. If this continues to be the case in 2019, one would expect private equity buyers to be on the lookout for attractive deals they can afford.
Source: Pitchbook
Conclusion
In an interesting take on take-private activity, some analysts are predicting a spike in action in 2019. Whether that will happen, of course, depends upon market conditions, interest rates, and overall expectations of the value of a privately held company compared to being a publicly held company.
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