The recent £1.84 billion take-private deal for Bodycote by Veritas highlights a growing trend of private equity firms acquiring undervalued industrial companies. This strategy allows PE firms to restructure operations away from the scrutiny of public markets, often with the goal of long-term value creation.
In the current market environment, many high-quality industrial companies are trading at valuations that private equity firms find attractive. The recent £1.84 billion take-private agreement for Bodycote by Veritas is a prime example of this trend. By taking these companies private, PE firms can implement long-term operational changes without the pressure of quarterly earnings reports or short-term stock price volatility.
Industrial companies often have stable cash flows and tangible assets, making them ideal candidates for the leveraged buyout model. In a world of economic uncertainty, these 'boring' businesses provide a defensive hedge for private equity portfolios. Furthermore, many of these firms are currently undergoing digital transformations that are easier to execute in a private setting.
This trend is supported by a robust fundraising environment in the European mid-market. With firms like Five Arrows raising hundreds of millions in new capital, there is significant 'dry powder' waiting to be deployed. This influx of capital is creating a competitive bidding environment for quality industrial assets, which is good news for shareholders of potential target companies.
For retail investors, the take-private wave is a double-edged sword. On one hand, it often results in a premium paid to shareholders, providing an immediate exit at a higher price. On the other hand, it removes high-quality companies from the public market, limiting the universe of available stocks. Investors should look for companies with strong balance sheets and undervalued assets that fit the profile of a typical PE target.