More Companies Are Going Private Than Public as IPO Climate Stays Tough

Turmoil across equity capital markets over the past 18 months has resulted in more companies being taken private this year than listing via traditional initial public offerings.

(Bloomberg) — Turmoil across equity capital markets over the past 18 months has resulted in more companies being taken private this year than listing via traditional initial public offerings.

There have been 47 proposed or completed deals to take a public firm private with a total value of $113 billion, according to research from Bloomberg Intelligence analyst Andrew Silverman. That compares with 39 US-based companies that have gone public via traditional IPOs on domestic exchanges, raising a modest $9.3 billion. The divide continues a trend that started early last year when the market collapsed as the Federal Reserve started raising interest rates.

Silver Lake’s more than $10 billion buyout of software firm Qualtrics International Inc. and an Elliott Investment Management-led consortium’s $4.4 billion deal to buy drug-research services company Syneos Health Inc. are among the largest take-private deals announced this year. The trend is partly driven by companies refocusing on their long-term strategy but also may be a sign that a recession is on the horizon, according to Silverman.

“More and more companies are coming to the conclusion that they can’t both focus on short term shareholder-centric goals while also following a long-term plan,” Silverman said. “Going private allows them to put aside shareholder goals, for a period, in order to refocus on their long-term strategy.”

For the few firms to raise cash in IPOs, there’s been a focus on profitability with corporate carveouts accounting for the year’s two biggest deals. Johnson & Johnson’s consumer health products firm Kenvue Inc., which makes Tylenol and Listerine, raised $4.4 billion, and solar power tracker NEXTracker Inc., a spinoff from Flex, tapped public investors for $734 million. Both companies are expected to see reliable earnings even amid lingering macroeconomic uncertainty, Silverman said.

Despite a raucous debut for fast-casual restaurant chain Cava Group Inc., most industry watchers aren’t ready to call the IPO window open. Just $10.6 billion have been raised by companies listing on US exchanges this year, and Kenvue accounts for $4 of every $10 in that amount, data compiled by Bloomberg show.

One impediment has been investors weighing a Federal Reserve that’s focused on combating inflation with a rush of interest rate hikes, even as the central bank paused its tightening at a policy meeting last week. 

“There’s just a lot of uncertainty and that’s probably what’s causing companies to go private as opposed to going public or even engaging in a reverse merger,” Silverman said. Excluding investment funds, there have been 86 reverse mergers totaling $7.3 billion — 6.5% of the value of going-private deals, Silverman’s research shows.

Read more: Wave of Corporate Spinoffs Fills a Void of Large US Listings

Bankers have touted the pipeline of companies waiting to tap public investors. British chip designer Arm Ltd. is expected to be the year’s biggest IPO, while other household names such as Instacart Inc. and Panera Bread Co. are among those Wall Street expects to go public when the IPO window reopens.

“More companies are legitimately thinking about testing the public markets now than they were three months ago,” said Peter Giacchi, head of DMM Floor Trading at Citadel Securities. “There are greenshoots, but we’d want to see more greenshoots before we can say ‘we’re back.’”

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