There is a new wind blowing across corporate America. It is a wind that seems to be carrying more public companies back into private ownership with the assistance of private equity funds. According to International Investor, delistings in America are on pace to set new records. Public company delistings are now happening at the fastest rate we’ve seen in a decade. It all presents a range of new opportunities for private equity.
Institutional Investor reported in late August 2019 that private equity firms had spent nearly $70 billion through the first 3 quarters of 2019 to acquire publicly held companies. They spent just over $54 billion in all of 2018. If public companies going private continues at its current rate, 2019 could prove to be the best year for private equity since 2007.
Even more fascinating is that the phenomenon is not confined to the U.S. Delistings are occurring all over the world. The total global value of public-to-private deals in 2018 was just over $106 billion. To date this year, global delistings have already eclipsed $105 billion. Again, this means a ton of opportunities for private equity.
Key Factors Driving the Push
So, what exactly is driving the push toward delisting? There appear to be two big issues: private equity funds looking to spend and companies tiring of the demands required of public companies. With a robust global economy that is stronger than it has been in 12 years, now appears to be a good time for both parties to make moves.
As far as private equity funds are concerned, they spent the last couple of years beefing up their cash reserves. Now they have to put that money to use. They see plenty of opportunity among public companies looking for a cash infusion but not necessarily wanting to solicit more public investment.
Those same companies are tiring of the demands of being public. They’ve had enough of quarterly scrutiny and constantly having to do things to keep a small number of large investors smiling. Going private is a way to release themselves from the constraints of public ownership.
Private Companies Remaining Private
In addition to growing numbers of public companies delisting, the current environment is making it easier for private companies to remain private. In states with exceptionally strong investment opportunities, like Utah for example, private equity companies are finding more and more opportunities to help smaller businesses grow without having to go the IPO route.
Actium Partners, a hard money and private equity firm in Salt Lake City, explains that up-and-coming regions like Utah’s Wasatch Front are very attractive for private equity. There are plenty of potential investment opportunities among businesses in a number of sectors, especially healthcare, life sciences, and technology.
The advantage of turning to private equity over going public is one of control. A company that brings on private equity as a partner does relinquish some control to that partner. But it is in the private equity provider’s best interests to make sure the company does well moving forward.
By contrast, going public completely relinquishes all control to shareholders and a board of directors. Keeping shareholders happy becomes the priority. Moreover, where private equity deals are offered with pre-determined time limits, going public is open-ended.
Companies all across America are delisting and going private. Others that have never been public are working to avoid doing so. Both are finding success by partnering with private equity firms that have money to spend. It is a win-win situation that is generating new and exciting opportunities for private investing.