With Capital Levels High and Stocks Low, Going-Private Deals Rise

By the end of last year, the number of these take-private transactions were on the rise as PE firms and investors had access to cash and debt and interest rates stayed low. There were 47 such deals made last year, up from 33 in 2020 and the highest total since 2010, according to financial data firm Dealogic. This year through Tuesday, that tally stands at 26, compared with 17 during the same time period last year. The value of these deals also has risen, topping $121 billion so far this year, the highest since 2007.

That momentum is expected to continue as the Federal Reserve sets out on a course of raising rates to curb inflation, including a rare half-percentage-point rate increase earlier this month. Concerns about inflation and recession have led to the S&P 500 falling 16% so far this year. Those stock-market declines have made companies less expensive to buy than a year ago.

With valuations of publicly traded companies dropping, the amount of equity required for take-private transactions involving these companies will decline, which makes such deals more doable, said Jeff Cohen, global head of the leveraged finance group at Credit Suisse Group AG .

“You might see more companies that might be viable targets for private-equity buyers that weren’t targets before,” Mr. Cohen said, adding that when public companies trade at 15 to 20 times earnings before interest, taxes, depreciation and amortization, it is hard for private-equity buyers to pay a premium above these levels.

Private-equity firms sitting on more than $1.32 trillion in unspent capital are expected to drive many of these transactions. Buyout firms paid a premium to acquire targets during the last couple of years, when a buoyant stock market drove up acquisition prices.

“Investors are seeing value and opportunity, and they happen to have a lot of cash in their pockets,” said Steven Siesser, a partner at law firm Lowenstein Sandler LLP.

Las Vegas-based Switch Inc., a computer-services company, Wednesday said it would be taken private by DigitalBridge Group Inc. and global infrastructure investor IFM Investors for $34.25 a share. The deal, valued at around $11 billion, places a more than 11% premium on Switch’s closing share price on Tuesday of $30.75.

Vista Equity Partners and Evergreen Coast Capital Corp. in late January said they are buying Citrix Systems, the cloud-computing company, in a deal valued at $16.5 billion, including debt. Citrix’s predictable revenue model made it an attractive target, The Wall Street Journal reported. The buyers also revealed plans to combine Citrix with Tibco Software, a Vista portfolio company that provides data-management software. The union would result in a business that serves 400,000 customers, including 98% of the Fortune 500, according to the company.

The decision to go private followed a five-month strategic review and “is the best and fastest path forward” for Citrix, Bob Calderoni, interim CEO and chairman of Citrix’s board, told CFO Journal.

Investment firm KKR & Co. and Global Infrastructure Partners LLC bought CyrusOne Inc., which builds and operates data centers, in March for roughly $15 billion. CyrusOne, like other data center providers, benefited from the data-usage surge during the pandemic.

Elon Musk was able to rustle up more than $7 billion from 19 investors to support his $44 billion bid to take Twitter private this year. The roster includes Larry Ellison, co-founder of Oracle Corp. ; venture-capital firm Sequoia Capital; and an arm of asset manager Fidelity Investments Inc.

Appealing transaction metrics aren’t the only reason companies and investors are turning to take-private deals.

Some companies see benefits in not having to worry about their stock price and instead focus more on running the business. Also, private companies don’t face the same regulatory filing requirements as public companies, which have to submit quarterly filings and other regular disclosures. Once a deal closes and a company becomes private, its filing requirements generally cease, attorneys said.

The Securities and Exchange Commission in January seemed poised to push for more transparency from certain private companies, but so far, it hasn’t put forth any related rule making. The commission didn’t comment on the status of plans for private-company disclosure requirements.

Private companies also deal with fewer restrictions on other issues, such as the composition of their board, attorneys and board members said. Private-company boards, for instance, don’t have to meet independence requirements, which for public companies mean that a certain number of directors must not have connections to a company beyond their board role that would affect their ability to use independent judgment. And while private-company boards may choose to develop committees, they aren’t required to follow SEC rules and exchange listing standards on board committee structure. Those generally require audit, compensation and nominating and governance committees.

“It’s very different as a private director, the degree of scrutiny, the degree of loyalty and all the rest,” said Kneeland Youngblood, the CEO of private-equity firm Pharos Capital Group LLC who was on the board of Burger King when the company was bought by private-equity firm 3G Capital in 2010.

“There’s much less regulatory pressure, much less exposure in terms of litigation,” Mr. Youngblood said.

—Nina Trentmann, Laura Kreutzer and Cara Lombardo contributed to this article.

Write to Jennifer Williams-Alvarez at [email protected]