From Public Back to Private is a Hot New Trend

The grass really isn’t greener on the other side. Quite a large number of freshly public companies are reverting to private ownership. This comes as a surprise due to a public trend circulating around in the past years.

Going public was the move in 2020 and 2021. Of the numerous companies that previously chose the trendy path, 10 have already committed to being acquired by private equity firms, states Dealogic. In contrast, out of the companies that went public in 2018 and 2019, only eight reversed to private ownership in the following years. 

The main reason behind this backtracking was the disillusionment by Initial Public Offerings (IPOs). Initial public offerings of 2020 and 2021 have failed to live up to their initial expectations. Moreover, most of them are currently trading even lower than their debut prices. 

This creates perfect momentum for private-equity investors aching for investment opportunities. Simultaneously, this benefits buyout firms who still have residual stakes in these companies but are anxious to return capital to their fund backers. 

From IPO Frenzy to a Freeze 

Companies scurried to list shares in 2020 and 2021. By that time, investors were willing to pay in a daze of future profits and expansion. However, an escalation in interest rates and a sharp decrease in stock prices curbed IPO’s promising future and left hopeful investors disenchanted.  Advisors are optimistic that the IPO market will start to recover by midyear. In addition, there have been some reassuring developments in recent weeks. Yet, some of the biggest companies waiting to go public, like the fintech company Stripe Inc, are not expected to do so until at least late 2023.

While some companies are selling at a loss, there are exceptions. KnowBe4 Inc went back to being private in a deal with Vista Equity that valued the cybersecurity firm at around $4.5 billion. This is much more than its IPO.