As over-extended banks shrink their balance sheets, public companies may have to turn to private equity houses to fund future growth, leading to a surge in the public to private buy-out market.

As over-extended banks shrink their balance sheets, public companies may have to turn to private equity houses to fund future growth, leading to a surge in the public to private buy-out market.

In an interview with Reuters, private equity partner Andrew Roberts at law firm Travers Smith observed that public-to-private deals have picked up over the last two weeks, with two transactions at the due diligence stage. Although he was unable to comment further on them, he noted that they were both mid-market transactions.

So far this year, the FTSE 100 has slumped by a third and as asset values plunge analysts believe that institutional investors will be looking to pull out of smaller and mid-cap companies and for interest from private equity houses to help them do so. “Large shareholders are hugely important in these types of deals,” said Roberts to Reuters.

“They have been actively encouraging private equity institutions and management teams at public companies to see if there is a way they can access the private equity market to get some liquidity.”

Richard Chapman, partner at mid-market private equity firm ECI Partners also spoke to Reuters. “Now that prices have come down on the listed market it will open up the possibility of doing public-to-privates – you also have willing vendors,” he said.

In the first nine months of 2008, there were 15 public-to-private buy-outs in the UK, according to the Centre for Management Buyout Research.