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Another strong year ahead for Private Equity, according to City specialists, HULT Private Capital
HULT Private Capital are optimistic that 2022 will offer prosperous opportunity for private equity investors.
Since the start of the year, a flurry of bids for companies post Brexit and the Covid-19 pandemic left London-listed companies trading with cheap valuations and, thus, vulnerable to takeovers. These takeovers are being orchestrated by Private Equity buyout firms such as HULT Private Capital, which use debt to quickly acquire businesses that they will typically own for between three and five years, maximising the value contained within the organisation before selling them for a profit.
The most recent large takeover bid is one for $9.5 billion by Fortress Investment Group to purchase the British grocery chain Morrisons. The Fortress offer is just the most recent private equity acquisition attempt, which, Lazard Asset Management states, accounts for 85% of taking-private British deals this year. A stock market with undervalued companies has resulted in Private Equity's willingness to spend $45 billion to purchase British companies in the first half of 2021. Refinitiv data illustrates this increase, more than double the next best first half-year on record and accounting for almost 10% of the total $547 billion which PE has spent globally.
In most cases, the Private Equity buyout model is a positive for the target companies usually in need of a managerial and strategic shakeup or injection of financing. Critics tend to point to some prominent downfalls like the Debenhams department store group, which was laboured under a significant debt burden when their private equity owners had moved on. Looking at Debenhams on an economic level, Debenhams group had extensive financial issues before their PE takeover, and benefiting from the cash injections it saw likely kept it afloat longer than it would have without the takeover.
July data from Peel Hunt (https://www.peelhunt.com/
JPMorgan Private Bank's head of investment strategy for EMEA, Grace Peters, called private equity interest in UK companies an excellent thing, saying that with equity investment, "you want to know there is an incremental buyer."
The British attraction for cash-rich private Equity is obvious. Since 2018 the US and European stock indexes have gained 65% and 25%, respectively, while the FTSE 100 is down 8% over the same period, trading at only 12.6 times future earnings. The US and Euro benchmarks currently sit at 21 times and 16.3 times future earnings, respectively;
The reasons for this discount are many; Brexit is first on the list, with COVID right behind it. A quote from HULT Private Capital's (https://www.hultprivatecapital.com/
Janus Henderson, a portfolio manager at Tom O'Hara, goes even further, saying that UK valuations are often unjustifiably cheap, even when these companies are hugely cash-generative, adding that "UK for sale" is an ongoing theme and will remain so until the market is better value. While the market refuses appropriate market valuations, Private Equity is happy to come and take these great companies "on the cheap."
This generous price premium also benefits the average investor by raising asset managers' higher share prices expectations for the London stock market after its years of underperformance. According to Peel Hunt analysis, Morrison's shareholders will reap a 40%-plus premium assuming the buyout proceeds at 270 pence/share, in line with this year's average premium offered by private equity firms.
This market of opportunity is excellent for HULT Private Capital to find good deals among undervalued firms on the London Exchange. There are now several arbitrage opportunities between public and private markets that our investors can gain from while taking advantage of low lending rates to purchase identified potential takeover targets. With low price-to-earnings ratios staying attractive, we see nearly unlimited upside for buyouts of British companies. We will continue to offer opportunities for investment in our HULT Private Equity takeovers to accredited investors and High Net Worth Individuals who wish to see superior returns not possible with traditional capital markets. Private Equity will continue to be a hot topic while the opportunity to profit remains.
HULT Private Capital