Private equity firms line up London lawyers ahead of deals frenzy
Private equity firms have been lining up London lawyers and floating “teasers” to the market in recent weeks ahead of an expected deals frenzy in the first quarter of next year, insiders have told City A.M.
Top deals lawyers in the Square Mile say they have seen a flurry of interest from private equity [PE] houses through December, who are looking to audition potential advisors before a rush of demand at the start of 2024.
Companies looking to sell are also floating “teasers” to the market to give potential buyers time to size up assets and do their due diligence ahead of a busy market in January, Christopher Sullivan, a partner at Clifford Chance said.
“This can be seen as business sellers and advisors trying to ‘get a head start’ in 2024,” he told CityAM.
“They’re ensuring that in a crowded market of companies for sale, they’ve spent time in the last quarter of this year giving potential buyers and their advisors early previews and discussions about targets.”
Moves to float companies in front of suitors are allowing firms to get ahead of a “surge” in the market early next year which could “overwhelm” buyers’ capacity, he added.
John Farrugia, co-chief of investment bank Cavendish, told City A.M. the firm was similarly expecting to see a “significant number” of PE backed firms up for sale early next year, as firms look to make the most of a more settled market to offload assets.
Dealmaking has been dampened globally over the past year by rapid interest rate hikes, which have pushed up the cost of financing deals. Valuations have also been in the doldrums, meaning PE firms have been reluctant to sell.
However, markets are betting on central banks to begin cutting rates sooner next year after weaker than expected inflation prints in Western economies. Inflation dipped faster than expected in the UK in November to 3.9 per cent, the office for National Statistics said yesterday.
After a subdued 2023, lawyers say private equity will be back on the pitch from the beginning of next year as the more stable rate environment allows them to more predictably finance deals.
“It feels a bit like things have kicked off in the last few weeks,” Paul Mullen, a corporate finance lawyer at Hogen Lovells, told City A.M..
“I would say quite a number of processes have [begun in December], with people looking to have financing in place for a bid deadline, with a view to those deals actually completing in the new year.”
Lawyers and bankers say they are also expecting a fresh flurry of public-to-private deals in London, as volatility on the market settles and firms come round to the idea of ditching their listings.
A predicted wave of takeovers in London failed to materialise in the first half of 2023 but gathered steam in the second half of the year, with 36 public firms agreeing to be taken into private hands by Christmas.
James Parkers, a deals lawyer at City law firm CMS, said the company is expecting the take private trend to “continue into the new year” as undeployed ‘dry powder’ for buyers and depressed sentiment towards the UK’s capital markets combine to “create a fertile ground for bid activity”.
“CMS is definitely seeing more activity on the company [target] side at the moment,” he told CityAM.