Themes of the Year: The take-private tidal wave

Public companies have become increasingly attractive targets for private investors as covid-19 rocked stock markets – 2021 only saw this trend intensify.

While private markets investments, especially in most infrastructure sectors, have proven their resilience during the pandemic, public markets investors have had a more challenging experience.

Stock markets have performed well overall, usually bouncing back to set record highs within weeks of any dips caused by travel bans or the latest coronavirus variant. But wider economic trends have left some share prices depressed for longer periods of time amid a wider market bounce-back, leaving them vulnerable to private capital raiders.

We highlighted take-privates in April as a trend to watch for the year ahead and, following that the deal-making environment did not slow down.

The trend has been strong across multiple jurisdictions, with the UK leading the way.

The value of public-to-private transactions in the country in the 12 months to July 2021 tripled to £28.6 billion ($38.2 billion; €33.7 billion), from £9.4 billion in 2020, according to research by law firm Mayer Brown (as reported by affiliate title Private Equity International).

This phenomenon is not unique to infrastructure, of course, but there have been several significant deals done in the sector, including the mega-deal struck by Blackstone, Global Infrastructure Partners and Bill Gates’ Cascade Investment Group in February (following a drawn-out bidding war) to acquire private aviation group Signature Aviation in a deal worth $4.7 billion.

Australia, too, has seen an especially busy period for take-private transactions in the infrastructure space, with multiple businesses acquired by private infrastructure funds this year.

The blockbuster acquisitions of fibre business Vocus by Aware Super and Macquarie Infrastructure and Real Assets; wind farm operator Tilt Renewables by the QIC-managed PowAR vehicle; and electricity grid operator Spark Infrastructure by a consortium comprising KKR, Ontario Teachers’ Pension Plan and PSP Investments were three of the standouts.

Meanwhile, two other major businesses are close to seeing deals sealed: Brookfield Asset Management’s A$10.2 billion ($7.4 billion; €6.5 billion) takeover of power grid operator AusNet and the IFM Investors and GIP-led buyout of Sydney Airport, a A$23.6 billion deal that would be one of the largest take-privates in Australian history.

The trend Down Under has been so pronounced that there aren’t very many listed infrastructure businesses of note left for investors to even take private anymore.

Public markets investors in London and New York still have plenty of options, thanks to deeper stock markets, but covid-19 continues to keep policymakers on their toes.

The emergence of new variants like Omicron are a particular threat to infrastructure assets such as transport or logistics that may require passengers or relatively open borders to achieve expected budgets.

Infrastructure investors with long-term horizons have shown that the public markets are fertile ground for bargains, though, as they are better able to pay a premium (on admittedly depressed stocks) when the payback is realised over decades.

Public markets investors, which often deal in far shorter timeframes marked by quarterly updates and annual reports, may increasingly find these types of long-dated assets disappearing from exchanges and into the hands of private investors.