June 23rd, 2017
– PE Buyout Value Reaches a Ten-Year High
– The Big Growth is in Retail
– Stock Grants Improve Profit and PE Image
– Secondary Prices are Rising
– Investors Still Like Energy
– PE KeyTrends Quick Question Results
PE BUYOUT VALUE REACHES A TEN-YEAR RECORD IN THE FIRST HALF, reports the Financial Times. PE purchases accounted for $143.7 billion, or 9 percent of $1.55 trillion in global mergers and acquisitions, during the period. PE deal value rose 29 percent over the same period last year, as fund managers stepped up efforts to put record levels of committed but uninvested capital to work. The PE-backed deal high should result in an imminent and significant rise in capital calls to fund deals and should keep purchase price multiples near all-time records, increasing the appeal of specialist strategies in less crowded areas of private equity.
RETAIL “IS THE BIG GROWTH AREA,” says Tony James, Blackstone’s president and chief operating officer. And whether he’s talking about Blackstone or about the private equity industry in general, it’s hard to disagree. Blackstone, the largest PE firm in the world with $368 billion in assets under management, recently signed a deal with three independent broker-dealers to launch a retail platform and is selling about $9 billion a year in investments through other retail and small institution channels, reports Private Equity International. A range of data providers, including regulator the U.S. Securities and Exchange Commission, show that only two groups of investors, individuals and sovereign wealth funds, have seen their relative share of PE assets grow in recent years, although most have seen growth on an absolute basis. The National Bureau of Economic Research believes $42 trillion is held by the wealthiest decile of U.S. families, most of whom are not invested in PE.
BELLWETHER KKR GRANTS STOCK FOR THE FIRST TIME in one of its public companies – a move that could be widely copied by others, reports Bloomberg. When listing Gardner Denver Holdings in May, a maker of gas compressors and vacuums, KKR retained 75 percent while issuing $100 million in GDH shares to some 6,000 employees – including hourly workers and customer service and sales staff. The shares, up 15 percent, were worth approximately 40 percent of the grantees’ annual salaries. Making workers shareholders is “entrenched” in the tech industry, notes Bloomberg, but it’s rarely found in traditional low-margin manufacturing businesses owned by private equity or others. Peter Stavros, head of KKR’s industrial team, describes manufacturers as ideal businesses for employee ownership. Operating in a low-growth context, they have to do “a million things better” to outperform and no one fine tunes better than front-line workers. If KKR’s idea spreads, it can improve profit and PE’s image.
PRICES IN THE SECONDARY MARKET ARE RISING, notes WSJ Pro, citing the latest quarterly report from fund advisory Triago. Average secondary pricing in 2017 year-to-date stands at a 5 percent discount to net asset value, narrowing from 9 percent a year ago. But discounts and premiums still offer plenty of value due to conservative valuations. Triago found that firms sold within the last twelve months by funds bought as secondaries were exited at a 22 percent premium to the last recorded net asset value. The quarterly also includes a range of proprietary statistics on primary fundraising, co-investments, separate accounts and direct investing, as well as a roundtable on the improving reputation of fund restructuring.
ENCAP PE FUNDRAISING SHOWS INVESTORS STILL LIKE ENERGY. Although volatile energy prices in recent years have led to negative returns and the collapse of a number of GP specialists, some managers have thrived amid the chaos, reports WSJ Pro, citing the example of EnCap, which has collected $6.2 billion towards a $6.5 billion fundraising target for its 11th flagship fund – the largest amount targeted by any energy fund at present. By switching from a focus on leasing fields for oil and gas drilling to a strategy emphasizing buying land and energy assets, Encap has been able to successfully trade properties as prices have risen and fallen, keeping investors keen to invest.