Dealmakers are buying public companies at deep discounts following stock market declines earlier this year.
The turmoil has made deal targets for take-private transactions less expensive than a year ago, allowing PE firms and corporate acquirers to shop attractive companies whose share prices are in the doldrums.
A flurry of deals have taken place in the technology sector, which has experienced significant valuation pressure in recent quarters.
While dealmakers frequently offer shareholders cash at a premium to the target’s share price, many of the take-private deals struck this year appear to be big bargains given where those shares were trading in the last 12 months. In some high-profile cases, the discount has been up to 50% off recent highs.
San Francisco-based Zendesk, a customer-engagement software company, agreed to be taken private by an investor consortium led by Hellman & Friedman and Permira for $77.5 per share. The deal, worth $10.2 billion, placed a roughly 34% premium on Zendesk’s last closing price on the day prior to the June 24 deal announcement. However, the purchase price reflects a roughly 50% discount to Zendesk stock’s highest price during the 12-month period prior.
In another recent case, buyout shop Vista agreed Aug. 8 to take Seattle-based compliance-software provider Avalara private in a $8.4 billion transaction. The purchase price Vista offered—$93.50 per share—is 51% below Avalara stock’s 52-week high of $191.67.
That huge discount, to some extent, spells out why financial and corporate bidders are rushing to acquire public companies recently.
From the target company’s perspective, public companies are willing to turn to private markets to avoid facing quarterly reports and analyst scrutiny in a challenging public market, said Jinny Choi, a PitchBook private equity analyst.
In 2022, when US PE dealmaking has hit a rough patch, the momentum of public-to-private buyouts remains robust. So far this year, there have been 32 take-private deals completed, totaling more than $87 billion in value, according to PitchBook data through Aug. 19. Take-private activities continue the feverish pace set through last year, when dealmakers inked 45 transactions worth $98.32 billion in the first nine months.
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