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For more of a decade, the title market shrank, thanks to share buybacks, leveraged acquisitions, cash-based mergers and acquisitions and bankruptcies. That’s all changed recently with the massive offer of IPO – both of traditional companies and SPAC.
Patrick Healy, CEO of private capital company Hellman & Friedman, discusses whether this environment signals a sustainable shift from privatization towards public markets.
(The below it has been modified for length and clarity.)
Leslie Picker: This pendulum appears to have swung towards expansion of stock markets this year. Do you think it’s an enduring trend or will it fluctuate? back the other way, guy of towards this privatization that we are seeing for the last decade or so?
Patrick Healy: It was a lot, a lot active and I think the background is a combination of the good old fashioned supply e demand. The last 10 years have seen sorts of an inequality of the public markets and how private the markets have become institutionalized, they have been in not only able to form companies and keep them longer in the private markets, but also own companies for longer in the private markets. And I think what you are seeing in this moment is a lot of that supply in I arrive back In the market in the module of new companies that have been in tour for maybe a decade or less, and older companies too. And so, you know, because companies are switching from private markets back In the public markets? I think it is a function of the demand. Investors are very eager to gain exposure to companies in growth. And I think this is the orientation towards growth. And I think it was really a big background to the IPO markets. One of the other inputs to the IPO markets are a background of volatility. And volatility remains, you know, reasonably low, so it’s a favorable background. You have a lot of interesting companies, in particular the technology or the growth oriented, and meet sorts of That demand of investors, you know, hunting for product. So in this moment is a very favorable moment for the private markets to, some, transition back In the public markets.
Selector: But does it remain so? way? And the reason I asked this is why you are in the business of privatize public companies, perhaps. I mean, of course, you could use also sponsor-to-sponsor agreements. But you just raised a $ 24 billion fund – I mean, that’s a lot of capital to put work. So you think the background and the outlines of this market that are so supportive of going companies public, and to increase the share supply in US equity markets, is it sustainable? Or do you think in the end, this guy of trend towards privatization that we have seen for it will take a long time effect again?
healthy: I think right now, with background of interest rates, as we have discussed in hunting for surrender, I think there is a very favorable market chance for the public markets, and I think the question, Leslie, probably remains with A lot of investors is what will change this? And some of the things that would change that would be the foundations. We are starting to see corporate earnings come in in this moment by reaching or exceeding your goals, you know, which is sustainable in the long term as we arrive out of the COVID situation, we don’t know. That is one appearance. The other aspect, of sure, it’s the specter of inflation. So these could be two variables that would change the appetite and the … risk appetite and rating levels for the public markets. On private markets, look, ours world it has always been competitive. I was in the industry for 27 years old. And businesses today really of whatever scale they are small or big, are often subjected to an auction procedure. And today, a company evaluates what it could want to do, has the public markets to watch – and this could be a traditional listing, it could be a SPAC, it could be a corporate sale or it could be a commitment with someone in the private capital markets and wisely could choose to do something in the private capital markets, I think it mainly depends on what type of their partner want. And I think that private markets often offer expertise in to sort of a real to sort of a way with that partner nature with A lot of flexibility for allow companies to maybe, you know, grow fast or perhaps pursuing strategic acquisitions. So you know, some of the reasons someone might look private market in alternative for they business, you know, it could be just That.
Selector: A lot has been made of the fact you have these companies that are going to public markets in perhaps a phase prior to what they would otherwise have, in largely through SPAC acquisitions, a lot of pre-revenue electric vehicle company, some types of tech companies with with minimal revenue at this point in time, the companies you would normally see going via public through an IPO. Do you think it is on the whole a good what for the public markets? Do you think that eventually, this might provide some opportunities for you down the road like private equity investors?
healthy: I think for professional, institutional and highly educated investors, I think those investors have the opportunity and the understanding and the background and the experience to examine the set of opportunities that are coming through the SPAC markets and analyze them. I think it is a less advantageous opportunity set for the retail investor and so I think that’s probably what Washington will look at. There is a lot of pre-income company or early stage that they are in able to get public and I think it’s driven by liquidity and willingness to finance those companies in they development, which will historically be done in the private markets. This is probably a less sustainable aspect of the public markets and as more And more things go public, investors will get more picky and fussy, and will likely lean towards the higher quality, let’s say, either in terms of business performance, or there will be an impact on the evaluation for access to public markets for less mature, less developed companies.
Selector: We talked about the $ 24 billion that you just lifted up. It’s a good time to be a buyer in this moment? Is there enough stock? out there, when you have this SPAC competition? You have competition as a strategic one, you have competition by some of your peers in the private equity world who also, from way, they raised huge funds in the last few years. IS possible to distribute that money? What gives you the certainty of being able to do it?
healthy: I think one of the things that a strong market environment like these offers are many of companies are interested in monetizing, and it could be valuation levels, could be an expectation that tax rates could change. So there is a lot of activities in reality in the markets in this moment. Lot of of these activities in gender are not available collaborate with, oa buy, or to sell so it is a great chance for us to find the highest quality companies where we can choose how along us want be run over in. Although the ratings might move up And down, one of the interesting things of the private markets, in particular private equity, do you have the? ability hold business for long time, develop them, extend the shelf life, so you are never a forced seller one time.
Selector: Traditionally, private equity was a forced seller with your traditional tenured funds. Do you think it is changing, that the duration expectations between private corporation and LP is that you can hold assets for longer just given where the ratings are in this moment?
healthy: I think you have a couple of things in course on to facilitate the extension of the duration. One is that we probably are in the third or fourth inning of institutionalization of private markets, like private the markets behaved, like more the capital has arrived in but we are in able to own and hold our companies longer. And we don’t necessarily do that anymore need sell something in five years, or write on the timeline, because we have the ability return the capital to our investors through dividends, perhaps a sale of shares. So the development of the private markets, and its resulting flexibility and creativity in the private markets, you know, really powerful chance.
– Ritika Shah, a CNBC producer, contributed to this article.
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