Private equity firms often acquire shares in public companies through PIPE (private investment in public equity) transactions and public to private deals. While PIPE deals can vary greatly in size, public to private deals are usually very large, as the firms being acquired are generally mature and very valuable, and the bidder often pays a premium over the market value.
Thus, although relatively few in number, these transactions constitute a large proportion of the aggregate value of buyout deals in a given year. In 2006, just 5% of the total number of buyout deals globally were investments in public equity (be it through a PIPE deal or public to private transaction), yet these deals accounted for 48% of the aggregate value of buyout deals globally. The figures were similar in 2007, with PIPEs and public to private deals contributing 7% of the total number and 52% of the aggregate value of buyout deals globally. However, in 2008 these deals were relatively less significant in terms of value, constituting 5% of the number of buyout deals and 27% of the aggregate value of buyout deals. While accounting for a greater proportion of the number of buyout deals in 2009, with 6% of the total, the aggregate value again fell as a proportion of all buyout deals, to 20%. In the following two years and the year to date, the number of PIPEs and public to private deals as a proportion of the total number of buyouts globally has remained at 6%, although their value has been more fluctuant. In 2010, these transactions accounted for 30% of the aggregate value of buyout deals globally, with the figure falling to 24% in 2011 and 14% in 2012, as of March.
The fall in aggregate value of private equity investment in public equities has been due in large part to a recent dearth of high value public to private transactions. The 20 largest such deals from 2006-2012 all occurred in 2006 and 2007 – the buyout ‘boom period’ – and other than the acquisition of Kinetic Concepts last July, 2009 - 2011 saw no public to private or PIPE deals valued at over $5bn. The largest public to private deal (and largest buyout deal) globally between 2006 and 2012 was the $45bn acquisition of Energy Future Holdings in February 2007, by a consortium of investors including Energy Capital Partners, Goldman Sachs Merchant Banking Division, Kohlberg Kravis Roberts, Quintana Capital Group, TPG, Citigroup, Lehman Brothers and Morgan Stanley.