Private Equity KeyTrends
April 23, 2013
A concise fortnightly distillation of key private equity news, with links to noteworthy PE articles and studies, edited by Palico – The Online Marketplace for Private Equity LPs, GPs and Advisers
SILVER LAKE HAS RAISED $10.3 BILLION FOR ITS LATEST PE VEHICLE, a record sum for a technology-focused private equity fund, “surpassing its fundraising target of $7.5 billion,” notes the group’s press release. Reuters writes: “for the first time in Silver Lake’s history, the majority of investors were based outside the U.S., with a big inflow of money coming from Asia and the Middle East.” The group’s last fund, the $9.3 billion Silver Lake Partners III, launched in 2007, has an annual net return of 16.76 percent and is valued at 1.37 times invested capital. The unprecedented size of the latest fund “offers Silver Lake capacity to carry out some of the biggest deals in the sector. It has made its biggest equity commitment in its history by offering to invest $1.4 billion” as part of the $24.4 billion proposed leveraged buyout of NASDAQ-listed computer maker Dell.
VIDEO – MIKE PSAROS TALKS ABOUT RAISING $3.5 BILLION IN UNDER FOUR MONTHS. The day the fundraising campaign was announced at their annual general meeting in Florida, Psaros, co-founder of KPS Capital Partners, explains that he and his team “knew we had raised the capital.” In this 4-minute CNBC video, Psaros says he’s “excited” about a U.S. “manufacturing resurgence” that attracted as much as $12 billion in potential commitments to KPS Special Situations Fund IV between January and April. The fund easily closed at its $3.5 billion hard cap and will continue the firm’s 20-year strategy of investing in turnaround situations in U.S. industry. The U.S. is “on the verge of becoming a hydro-carbon superpower” and “the effect on manufacturing in this country is going to be unbelievable,” says Psaros. The fund attracted investors from “North America, Europe, Asia and Australia,” according to KPS’ press release.
EQT IS MERGING ITS EUROPEAN AND ASIAN GROWTH CAPITAL TEAMS to help it stand out in a crowded fundraising market, according to the Financial Times’ Anne-Sylvaine Chassany. The merged team, headed by Jan Stahlberg, co-founder of EQT Partners, is trying to “maximize” its chances to raise “about E1 billion” for a new fund “targeting medium-sized companies in Northern Europe and Asia.” Without a distinctive angle, in this case cross border expansion, it’s “difficult to raise a dedicated fund,” notes one of Chassany’s sources. In January, EQT, Sweden’s largest private equity group, “secured E1.93 billion for a new infrastructure fund, beating its target. In 2011, the firm raised a E4.75 billion buyout fund, the maximum it had sought.” EQT’s recent fundraising success stands “in contrast with the majority of its peers in Europe, as investors cut the number of fund managers they back.”
FUNDRAISING IS SET TO INCREASE, BUT GPS NEED MORE INGENUITY THAN EVER. According to recently released industry statistics, some 130 private equity funds held final closes worth slightly more than $69 billion between January and March, with buyout fundraising – the lion’s share of volume – nearly doubling. Yet limited partners face growing difficulties keeping tabs on a private equity universe diversifying rapidly by geography, specialization and vehicle structure.
BLACKSTONE, THE WORLD’S BIGGEST BUYOUT FIRM REPORTED A 28% RISE in Q1 profit on the same day it pulled out of a proposed bid for computer maker Dell. Blackstone reported “economic net income of $628.3 million, up from $491.2 million a year earlier,” writes Reuters, with “most of the rise in ENI due to cash generated from selling assets, rather than fees charged investors to manage their money. Distributable earnings – actual cash available to pay dividends – jumped 134 percent to $379 million,” as assets under management rose 3.8% from the end of 2012 to $218.2 billion. Meanwhile, Bloomberg notes: “Blackstone completed six follow-on deals selling shares in companies it owns, as well as a $580 million initial public offering of Pinnacle Foods during the quarter.” On the investment side, “we had a slow rate for the quarter” and “missed one or two large situations where we would have ended up putting $1 billion or more into a transaction,” says Blackstone chief executive Stephen Schwarzman. “Worldwide, the value of PE deals announced in Q1 rose 16% to $114 billion, with leveraged buyouts more than doubling to $55 billion,” Bloomberg writes.
PE EXITS AND IPO EXCITEMENT CONTINUE, as Blackstone-backed SeaWorld Entertainment raised $702 million, valuing the firm at $2.5 billion, in a bellwether New York Stock Exchange debut that saw SeaWorld shares rise 24 percent on the first day of trading. The theme park operator’s IPO of 26 million shares was priced at $27 per share, “the high end of the expected range of $24 to $27 per share,” writes The Associated Press. The sale was encouraging in the wake of lackluster demand for two PE-backed NYSE initial public offerings that preceded it: one for chemical company Taminco and another for commercial satellite operator Intelsat. The New York Times DealBook notes Blackstone “paid about $2.3 billion for SeaWorld in 2009, investing about $1 billion of equity.” Blackstone received dividends of $610.1 million in the last two years from SeaWorld and sold no shares in the company’s IPO.
PE STOCKS ARE NOW SEEN AS A “BACK DOOR FOR PLAYING THE IPO MARKET.” InvestorPlace columnist Tom Taulli writes that there is new appeal for retail investors when it comes to buying shares in listed private equity mega-firms like “Blackstone, KKR and Carlyle. Institutional investors are the ones that get IPO deals at the offering prices. But there is an interesting way to get a piece of the action: buying shares in private equity firms.” Such a view represents a noteworthy sea change from a few months ago, when private-equity backed initial public offerings were widely considered risky and listed PE was in the doldrums.
COMPARING “THE WORLD’S BIGGEST PE GROUPS REMAINS A THANKLESS TASK,” writes the Financial Times’ Henny Sender. “Each listed private equity group has its own favorite accounting metric to express its performance. The variation can be so great that one analyst estimates that if one of Blackstone’s rivals used exactly the same methodology as it does, the rival’s results would be much lower than those it reports on the basis of its own definitions.” With “results due in the next weeks from KKR, Carlyle, Oaktree and Apollo, it is almost impossible to rank their relative performance.” With time, “the differing results should converge, as the costs associated with the groups going public fall away,” says Sender.
HIGH NET WORTH INDIVIDUALS ARE PILING INTO PRIVATE EQUITY, according to TIGER 21’s latest Asset Allocation Report. TIGER 21 is a “peer-to-peer learning group” for high net worth investors with over 200 members who collectively have $19 billion in assets, with a minimum of $10 million in investable assets each, according to its website. TIGER 21’s quarterly report shows that in the three years through March 2013, allocation to private equity has risen to 22% of the group’s investable assets from 9%. Among seven tracked asset classes, private equity’s share of TIGER 21 wealth is now second, just behind public equities at 23%, up from fifth place in March 2010, when only allocation to commodities and currencies was lower than PE.
THE HEFTY DEBT PACKAGE FOR THE BUYOUT OF ISTA, the German metering firm being acquired by CVC, shows credit for PE deals is plentiful in Europe. According to peHUB, “a debt financing of more than E2 billion backing the E3.1 billion purchase will be a mix of leveraged loans and high-yield bonds. CVC trumped rival BC Partners to buy a 76 percent stake from Charterhouse in Germany’s largest private equity deal since 2008. The debt financing will have total leverage of around 7.25 times earnings before interest, tax, depreciation and amortization.” That corresponds to a total purchase price multiple of about 10.8 times EBITDA. Deutsche Bank is in “lead position on the financing package.”
VIDEO – “WHAT’S NEXT FOR PE IN CHINA AND INDIA” and what is “the state of play in the Philippines, Indonesia, Thailand, Vietnam and Myanmar?” In this 14-minute Privcap video, “David Wilton, CIO of global private equity for the International Finance Corporation, provides deep analysis of China, India, and frontier markets in which the IFC backs PE funds. Revelations include: China’s one-child policy is now driving private equity deal flow, and control deals are happening in India,” where Wilton says the “highest quality offerings” the IFC has “ever seen” are available.