Private acquisitions strip greater than $1tn from European fairness markets | USAEMALL.com

Private acquisitions have stripped more than $1tn from European equity markets in the past decade, according to a new report underlining how stock markets are losing out in the private capital boom. 

The trend poses a “much bigger threat” for European capital markets than defections of listed companies to Wall Street, according to a new report by HSBC Global Research and think-tank New Financial. 

The report identified 1,013 European listed companies that have been acquired by private equity or unlisted companies in the past decade, compared with 130 that had moved to the US stock market.

“The inability of public markets adequately to recognise the value of companies on such a scale is problematic,” said Ian Stuart, a senior executive at HSBC. There is a “clear sense of the balance shifting away from public markets towards private markets”, the report said.

Europe’s stock markets have lagged behind Wall Street’s soaring indices in recent years, driven by a bull rally for Big Tech stocks. This has sparked concern among policymakers about the state of the continent’s capital markets and prompted companies to seek listings across the Atlantic, as well as making them more vulnerable to takeovers as their stock prices lag.

Last year, Abu Dhabi National Oil Company took listed German materials group Covestro private for €14.7bn, while KKR acquired NetCo, the network operator of Telecom Italia, in a €22bn deal. Norwegian-based Adevinta was snapped up by Blackstone and Permira in a $13bn deal in 2023.

London’s equity markets have felt the impact of private capital acutely, having lost companies such as Morrisons, Worldpay and Hargreaves Lansdown to private buyers in recent years.

Fund managers also warn market volatility since Donald Trump announced his “reciprocal” tariffs could accelerate the trend by making listed companies cheaper and more attractive for private takeover, especially as buyout firms are sitting on vast amounts of cash waiting to be deployed.

Apostolos Thomadakis, head of research at the European Capital Markets Institute, said private acquisitions pose a “big risk” by pulling public investment away from Europe and further entrenching reduced participation in the region’s market.

“As more and more companies leave public markets, the liquidity of European markets will go down,” said Thomadakis, who said this reduced liquidity “is why we cannot finance start-ups, why they leave Europe”.

Thomadakis warned that the shift to private capital would “reduce transparency” and “weaken price discovery” and meant that the continent risked losing control of strategically important companies to non-European private actors.

At the same time, private equity and debt markets have grown sharply in recent years, reducing the need for companies to go through the requirements of a public-market listing or debt issuance.

Goldman Sachs chief executive David Solomon said this year that companies are able to “get capital privately, at scale”, meaning that “reasons to go public . . . are getting pushed out”.

Despite some of the Wall Street premium diminishing in this month’s sell-off, European stocks remain cheap compared with global peers, with a forward price-to-earnings ratio — a key valuation metric — for the Stoxx Europe 600 at 14 times compared with 20 for the US S&P 500.

Hope of a higher valuation and better liquidity has encouraged a rise in defections from European indices to the US, with the UK equity market last year suffering its biggest exodus since the financial crisis. 

The HSBC/New Financial report said of the 130 companies in its research that had moved to the US, including through IPO, switching their primary listing and similar transactions, 70 per cent were trading below their listing price. 

It comes after FT analysis in March showed that half of the companies that had added a US listing failed to record a valuation uplift, while most experienced better liquidity in their shares.

The report’s authors urged policymakers in the UK and EU to push ahead with reforms to make public markets more attractive.

The UK last year announced its biggest listings overhaul in decades, while the EU is seeking to create a capital markets union, after former European Central Bank head Mario Draghi recommended its completion in an influential report on the future of the region’s competitiveness.

Investors also warn the market volatility since Trump’s “liberation day” tariff blitz may encourage more private acquisitions.

“If you’ve got a soft equity market, and the context of private equity having a lot of unspent capital, you will see a lot of public [companies turning] to private,” said Hamish Mair, head of private equity at Columbia Threadneedle Investments.

The market “could see a lot more” private equity buyouts of listed companies, particularly now that certain firms have “refined” the process, he argued.

“You could see that shrinkage of the public markets continue” unless more companies come to them, he added, noting that “doing an IPO at the moment is very, very difficult”.

“A dearth of IPOs is not a good thing for equity markets, or any equity holder,” he warned.