When an economy is experiencing tightening credit conditions, private equity firms are likely to make a transition to a greater proportion of minority stakes in portfolio companies rather than a majority/controlling or full ownership stake. During the buyout boom era, private equity firms taking a minority shareholding in North America-based portfolio companies was between 22% and 23% of all buyout deals the region, however, perhaps unsurprisingly, this increased to between 30% and 32% in 2008 and 2009, likely to be a result of worsening credit availability.
North America has reached a peak in relation to the proportion of minority investments so far this year, in the period from 2006 to present, which could insinuate a tapering confidence in the region. Private equity firms may therefore favour a minority shareholding, so that they suffer less during financial hardship and require a smaller amount of leverage to support these investments. Without including the announcement of acquisition of Dell Inc. and H.J. Heinz Company in 2013, which collectively amounted to $52.6bn, the average deal size in North America so far this year has been $329mn. This is the lowest average deal size in the region since 2009 when the average deal size was $212mn, which is likely to be a result of the increased proportion of minority shareholdings in North America-based companies. Private equity firms will generally invest a smaller amount of capital to acquire a minority stake in a company over a majority or full ownership stake.
A contradictory shift has been witnessed in Europe so far this year, which could be a result of better credit availability in the region. Renewed confidence in the region may have spurred private equity firms to gain majority or full ownership stakes in portfolio companies to have more influence over the voting power and company strategy, as well as hopefully benefiting from financial upside. During 2012, 59% of private equity-backed buyout deals in Europe-based companies were for a majority or full ownership stake in the company. This proportion of majority or full ownership stakes in Europe-based companies has risen to 69% in 2013 YTD.