More public firms opting to go private

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 U.S.-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 and an Elliott Investment Management-led consortium’s $4.4 billion deal to buy drug-research services company Syneos Health 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, which makes Tylenol and Listerine, raised $4.4 billion, and solar power tracker NEXTracker, 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, most industry watchers aren’t ready to call the IPO window open. Just $10.6 billion has been raised by companies listing on U.S. 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 Fed 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.

“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.

“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.’”