Key insights from this article
European private equity firms are sitting on a record USD 430 billion in dry powder and are actively seeking investment opportunities – P2P deals offer a good fit.
Key success factors in P2P value creation include resolving the buyer-shareholder valuation gap, securing management buy-in, and ensuring financial feasibility.
Achieving these means setting clear and ambitious targets, stress-testing the operating model, establishing a roadmap, and ensuring accountability and transparent reporting.
Private equity firms are increasingly buying up listed companies. But once the transaction is complete, too many fail to prioritize value creation, compromising the new company’s growth. Roland Berger offers a solution.
Taking public companies private has always been a strong strategic option for investors seeking growth, profits, or market leadership. But in the past few years, activity has accelerated significantly, especially in Europe. The number of take-private transactions in Europe jumped by almost 50% between 2020 and 2021, hitting a record 54 with a volume of USD 52 billion (EUR 45.6 billion). The figure has remained roughly stable since then.
The reasons for the uptick? The combination of market pressures, strategic considerations, and increasing interest from
private equity
(PE) provided the impetus. Success, meanwhile, helped drive the trend – indicative figures show that companies recently taken private by PE firms achieved around twice the revenue and EBITDA growth of comparable listed peers. With market valuations currently depressed and PE firms holding significant cash reserves, the uptick is only likely to continue.
The truth is, however, that most take-privates could do even better. Put simply, they fail to realize the huge untapped potential for post-deal value creation. While managing short-term shareholder expectations, company leaders overlook long-term value creation measures such as strategic planning, reducing costs, or pre-empting market disruption. It can prove a costly mistake.
The purpose of this article is to ensure take-privates optimize value creation and fulfill the untapped potential. Aimed at both PE buyers and companies considering delisting, it first assesses the advantages and disadvantages of staying public and going private, looks at the drivers behind the current trend for public-to-private (P2P) deals, and defines key success factors for transactions. Drawing on our particular value-add expertise in the post-deal part of the delisting process, it then outlines Roland Berger’s value creation approach and tools. These cover the entire holding period and include strategies to stress-test the operating model, streamline the cash-flow profile, and establish transparent reporting.
The result is a clear set of answers for PE firms and public company leaders on the key P2P questions: what should we do to maximize post-deal value, when, and how?
“The deal buys potential. Execution creates value.”
Public vs. private: The pros and cons of public and private ownership
First, it is worth looking at the differences between public and private companies, and the advantages and disadvantages of both.
Public companies have traditionally enjoyed several benefits. The ability to easily buy and sell their shares makes them attractive to investors seeking liquidity, and access to capital markets is generally more straightforward. Listed status also brings a certain prestige, enhancing a company’s reputation among suppliers, customers, and potential employees.
However, these benefits come at a cost. Public companies face extensive regulatory, administrative, and reporting requirements, which can consume a significant portion of management’s time and resources. Moreover, the constant pressure to meet quarterly earnings expectations often shifts the focus from long-term strategic objectives to short-term financial performance.
In contrast, private companies are not subject to the same level of scrutiny. Freed from the demands of public markets, they can focus more intently on long-term goals and pursue strategies that may take years to bear fruit. Additionally, private companies benefit from reduced administrative and compliance costs, as they are not required to meet the same stringent reporting standards as their public counterparts. However, private ownership also has its drawbacks, including reduced liquidity for investors, less public visibility, and fewer options for share-based employee incentives.
The rise of P2P: Transaction numbers are more or less stable in Europe
In the past few years, there has been more or less a sidewards move with some ups and downs in the number of public companies in Europe deciding to delist and sell to a private buyer. Expanding on the figures given below, we see that the number of public-to-private deals each year since 2021 has leveled off at around 50, according to PitchBook data. Total deal volumes, however, have been far more volatile, with the amount of capital invested per year ranging between around USD 30 billion and USD 80 billion (EUR 26-70 billion).