Private equity funds set to target Aim-listed firms
Private equity funds are expected to target Aim-listed companies once lockdown has eased and dealmaking is resumed.
The number of private equity-backed deals for Aim companies trebled in the past 12 months. PE funds bought and took 12 companies private in 2019/20, compared to just four deals in the previous year ended 31 March.
Aim is a sub-market of the London Stock Exchange for smaller growing companies, from early stage, venture-capital backed firms to more established companies.
If the coronavirus crisis continues to cause a market dislocation, there could be a repeat of previous cycles when PE funds took advantage of low Aim company valuations to launch acquisition sprees.
Accountancy firm BDO said PE funds have become more comfortable with acquiring Aim firms since the global financial crisis. It is in part because the market has improved its reputation on governance, and it has become home to larger and more profitable companies.
John Stephan, M&A partner at BDO, says: “Aim received a lot of attention from private equity over the last 12 months. A lot more funds have become comfortable with public-to-private deals for junior market companies as Aim’s reputation for bigger, higher-quality companies has grown.”
The value of take-private deals of Aim firms hit £1.1bn in the past 12 months. Among these, was Basalt Infrastructure Partners’ £255m takeover of broadband and telecoms firm Manx Telecom in May 2019.
Additionally, as inflows have risen since 2008, funds are looking to deploy capital urgently. For now, there will likely be a drop off in deals while the economy navigates the coronavirus crisis and funds wait for the end of lockdown to resume dealmaking.
Additionally, many GPs will turn their attention to protecting their portfolio companies, which could drag activity down to levels not seen since 2008.
BDO predicts that deal activity for Aim-listed firms will pick up quicker than for private companies. This is because listed companies have seen a much sharper and more visible fall in their valuations than private companies.