Damp squib? Private equity frenzy fails to materialise as interest rate pain scuppers deals
A much-anticipated deal frenzy from private equity firms in Europe has failed to materialise this year as rising interest rates dampen the appetite for debt-fuelled takeovers, analysts have said.
Analysts had been predicting a wave of deals this year as dealmakers took advantage of a downturn on the public markets to hunt for bargains. Private equity firms are also sitting on mounds of so-called ‘dry powder’ raised prior to the pandemic.
The uptick showed signs of rearing its head last year in London as firms including iconic fashion business Ted Baker and transport group Go Ahead were picked off by foreign buyers.
Investment data firm Pitchbook predicted the wave of take-private deals could top $30bn (£23bn) this year but analysts have now dramatically reined in the prediction after a “miserly” 14 deals totalled some €1.7bn in the five months to the end of May.
“At the current run rate, take-private deal value is on pace to fall short of €30bn at the year’s conclusion,” said Nalin Patel, Pitchbook’s chief analyst for Europe, the Middle East and Africa. “Surging interest rates have reduced the desire to use leverage for private equity dealmaking, leading to less activity and fewer potential take-private targets in the space.”
Patel added that publicly listed companies have experienced “mixed fortunes” in the year so far and the “appetite for companies to delist may be subsiding” in the second half of the year.
“Inflation rates are cooling, and interest rate hikes could be slowing, ultimately leading to a clearer macroeconomic picture and growth-inducive policies, which could help public company share prices,” he added.
The slowdown in deals in the UK comes despite a number of failed bids for listed companies. Private equity giant Apollo made multiple swoops on energy service firm Wood Group and e-commerce group THG but was rebuffed by the boards.
There have been signs of an uptick since the end of May, however. Animal drug maker Dechra agreed to a bumper £4.5bn takeover by Swedish investor EQT at the beginning of June.