Buying private equity of public companies at a record pace during a bear market crash

Private equity firms are taking over public companies at a frantic pace amid a crash in stock markets that has sent valuations down.

In the first half of 2022, buyout funds — which specialize in acquiring a controlling stake in a target company — announced or completed private buyout deals worth $110 billion globally, data from Brecken showed. The number puts the value of this year’s deal on pace to surpass the record $181 billion in 2021.

The rush for private companies to book and delist public names followed a sell-off in US stocks that drove the S&P 500 and Nasdaq Composite into bear markets in the first half of this year, with the most sought-after technology names hurting. In July, risk appetite improved with the S&P 500 and Nasdaq up 9% and 13%, respectively.

This downturn in public markets has not affected the private equity industry’s dry-powder stocks, or the capital that investors are committed to but not yet used by private equity funds. As of June, buyout funds were standing at $873 billion in dry powder form, up slightly from $870 billion at the end of 2021.

North America saw the value of public-private deals hit $96 billion in the first six months of the year, compared to $118 in all of the previous period, per Preqin.

Notable acquisitions that closed this year include Apollo Global Management’s approximately $7 billion agreement to acquire auto parts maker Tenneco (TEN) and Blackstone’s purchase of PS Business Parks for $7.6 billion.

In software, Thoma Bravo has been the market leader, engaging in $42.4 billion of acquisitions since the beginning of 2021. Thoma Bravo’s deals include a $10.7 billion acquisition of Anaplan and a $2.6 billion deal to acquire Bottomline.

Brookfield Asset Management, Clayton Dubilier & Rice and TPG Capital are also high on the list of corporate takeover giants this year.

Companies in the technology sector, particularly software, were prime targets, according to Brecken.

“Significant declines in public market valuations did not lead to the situation we see here in 2008, where average deal values ​​rise amid a market downturn — and there is no clear pattern in the following years,” Breken said. Moreso, correspondingly higher in relative valuations in 2021, and lower in 2022, also appears to have no significant impact on fund managers’ appetite for these deals.

“These software companies are likely to be able to face the future,” Brecken noted.

The Pinterest logo is displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York City, US, October 20, 2021. REUTERS/Brendan McDermid

Even outside takeover territory, mega-money managers have become more aggressive in recent weeks.

Activist investor Elliott Investment Management has targeted Pinterest (PINS) and PayPal (PYPL), two stocks that have suffered huge losses since late 2021.

On Monday, Elliott revealed that she had become the largest contributor to Pinterest and issued a backing of the company’s new CEO Bill Reedy, news that sent shares up as much as 19% in after-hours trading.

In an interview with Goldman Sachs earlier this year, ARK Invest founder and CEO Cathy Wood said she considers companies that trade at low valuations to be bought as the biggest risk to her company.

“So we will fight hard against the big companies if they try to snatch their superior assets at very low prices,” Wood said.

It seems the time for the fight has begun.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter Tweet embed

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