Brexit’s Like a ‘Building on Fire’ and Buyout Firms Are Circling

(Bloomberg) -- Private equity firms, sitting on about $1 trillion of dry powder and grappling with high valuations, may get a chance at a bargain as the U.K.’s departure from the European Union approaches.

“When everyone is rushing out of a building on fire, there can be opportunities to find valuable stuff there,” Robin Marshall, Bain Capital’s co-head of European private equity, said Wednesday.

“We look at opportunities where there is scope for transformation at right valuations and it can be a contrarian view to what everyone else is thinking,” Marshall said at JPMorgan Chase & Co.’s European High Yield & Leveraged Finance Conference in London. “For us, Brexit presents such an opportunity.”

The country’s seen some big deals this year, with bidders agreeing to spend about $223 billion on British targets, according to data compiled by Bloomberg. That’s 38 percent more than a year ago, outperforming Europe and the world as a whole, the data show. The biggest is Comcast Corp.’s offer of more than $30 billion for Sky Plc.

It’s relatively easy to take companies private in the U.K., compared to other European markets, according to Jan Janshen, managing partner at Advent International. In March, his firm agreed to buy Laird Plc in a deal that valued the smartphone-parts supplier at about 1 billion pounds ($1.3 billion).

There are situations where being publicly traded can “hold companies back, and a change of ownership through a PE firm can really alter the course of business,” Marshall said. Bain agreed to take insurance company Esure Group Plc private this year for 1.2 billion pounds ($1.5 billion).

High Valuations

Despite high valuations, Jan Janshen, managing partner at Advent International said he’s seeing healthy levels of deal activity as conglomerates break up and public companies are taken off the market. Larger deals also have a much bigger equity component than in the past, he said.

“By any metric, we are in an elevated valuation cycle, and we have to be careful of that, but that doesn’t mean there are no deals to be done,” Janshen said at the conference. “The valuation factor is also different by sector. Industrials is a sector that is more exposed to the cycle, as opposed to health care.”

Corporate carve-outs -- such as Thomson Reuters Corp.’s decision to sell control of its financial-and-risk division to Blackstone Group LP in a deal valued at about $17 billion -- will be a major source of big transactions going forward, said Daniel Rudnicki Schlumberger, head of financial sponsors at JPMorgan. Financing for deals in the energy industry is opening up and could be attractive for buyout firms while retail, vulnerable to slowing economic growth, is less attractive, he said.

“We have seen a very busy first half and expect LBO activity to remain robust going forward helped by large deals,” Rudnicki said. “There is a feeling that we are at the late stage of a cycle and the question remains, how long will this last? Debt markets in Europe are still receptive to large transactions and there is a feeling that those types of deals can be done.”

To contact the reporters on this story: Dinesh Nair in London at dnair5@bloomberg.net;Sarah Syed in London at ssyed35@bloomberg.net

To contact the editors responsible for this story: Aaron Kirchfeld at akirchfeld@bloomberg.net, Amy Thomson, Michael Hytha

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