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Private-equity activity has rallied since Brexit vote

The sell-off following the Brexit vote has opened the door to private-equity bids
September 9, 2016

A post-referendum flurry of private-equity activity shows no sign of slowing, with multiple London flotations planned for the coming months. Investors in the multiple companies that have received private-equity bids in recent weeks are having to weigh up bids from major private equity houses, which are looking to take companies off market.

Pinewood (PWS) and Private Equity Investor (PEI) shareholders will vote on recommended offers from Aermont Capital and Kline Hill Partners, respectively, in the coming weeks. Meanwhile, the board of Journey (JNY) has recommended a bid from Harwood Capital, a private-equity outfit already in the process - together with Continental Investment Partners - of buying Source Bioscience (SBS). Moreover, KKR is reportedly mulling a possible bid for Entertainment One (ETO).

Given the rush of offers, it's worth asking what motivates private-equity groups and their targets. Suitors often claim they can slash operating costs and boost the efficiency of a business by taking it private, and point out synergies with their existing interests and their superior scale and resources. Meanwhile, companies tend to highlight the chance to escape the costs of a market listing and the freedom to wrestle with restructuring challenges out of the public eye. Boards will often frame the offer as an attractive exit for investors, especially if the business is struggling and a positive return looks uncertain.

Private-equity houses are also cashing in as well as buying out. CVC Capital Partners, which bought 80 per cent of Sky Bet from Sky (SKY) at the start of 2015, reportedly intends to float the betting business early next year at a £1.5bn valuation. Banking software group Misys, medical products specialist Convatec and car parts maker TI Automotive, owned by Vista Equity Partners, Nordic Capital and Avista Capital Partners, and Bain Capital, respectively, are also mooted to be seeking billion-dollar valuations via London listings. The glut of blockbuster floats highlights the relative resilience of the London stock market since the EU referendum, and the fact that several listings were delayed due to the uncertain outlook.