The fit is right, the opportunity is clear, and the evidence is everywhere: the private market is increasingly looking to the listed markets to deploy capital. In the first half of 2019 alone, we have seen more than $50 billion in transaction activity between private investors and public companies. Deal activity spans all core sectors and comes in various forms: direct equity stakes, joint venture investing, individual assets, portfolios of assets, and outright privatizations of public companies by private buyers. Private investors include the largest open-end funds (IFM and JP Morgan), the largest Canadian pension plans (CPPIB, OMERS), sovereign funds (GIC) and a host of private equity players (Blackstone, Brookfield, EQT, Digital Colony, among others). All this activity reinforces the value embedded in the listed companies and provides the potential for multiples to re-rate higher.
The starkest evidence can be found in cases of privatizations where the price paid shines a light on the valuation gap between the public and private markets. In 2019 we have seen privatizations across the core sectors: assets targeted included fiber networks (Zayo), satellite (Inmarsat), midstream (Buckeye), electric utilities (El Paso Electric) and railroads (Genesee & Wyoming). These deals were all cash and done at a deal-weighted premium of 34% versus stock prices unaffected by M&A chatter in the marketplace. This differential shows the levels where private buyers still view they can achieve adequate returns on core infrastructure assets and highlights the inefficiency in the listed markets which have not yet come to fully grasp the private market dynamics at work.