WHO SAYS BIG DOESN’T WORK IN PRIVATE EQUITY? Bloomberg Businessweek uses last week’s initial public offering of Blackstone-owned Hilton, generator of the biggest PE profit of all time - on paper - as a chance to explore the state of some of the largest private equity deals ever, many of which were acquired at the height of the credit bubble between 2006 and 2008. Over the years, these transactions have frequently been held up as examples of why PE mega deals perform poorly. Yet Bloomberg notes that several huge transactions from the credit bubble years have turned out to be highly profitable. Hilton and another PE mega deal, Apollo Global Management’s purchase of chemical manufacturer LyondellBasell Industries, have each yielded more than $10 billion in profit for their owners. Mike Kirby, chairman of Green Street Advisors, a property research firm, tells Bloomberg Businessweek, with Hilton, Blackstone “demonstrated the best attributes of what PE advertises itself to be, which is finding and improving companies with an intensive dose of new and better management.”
PRIVATE EQUITY'S STOCK OF UNSPENT CAPITAL "HAS SURGED TO $789 BILLION - an increase of 12 percent since December 2012, after four years of decline," reports the Financial Times. "Buyout groups' rising cash piles reflect" strong fundraising this year, plus "the fact that they have taken longer to invest their funds since" the 2008 financial crisis. Although PE funds may feel pressure to invest unused capital before five-year commitment periods expire, Mario Giannini, CEO of fund-of-fund giant Hamilton Lane, discounts this possibility. Citing the relatively weak volume of private equity-backed purchases this year, he notes "there is overcapacity, but there's also discipline today on using that capacity." A number of industry professionals expect dry powder statistics to fall substantially next year, once a record estimated annual bulge of $145 billion in unspent capital, expiring in 2013, is taken into account.
In This Issue:
- CalPERS' Annual Returns for Co-Investments and Directs Soar
- PE Returns Beat Other Assets, but Complexity Grows
- With RMB Funds Stripped Out, Annual Asian Fundraising Rises
- Loosening Debt Terms Favor PE Returns
- Private Equity’s “Online Courtship” is Just Beginning
- Carlyle Declares Energy the Most Attractive PE Investment Sector
- TPG’s Bonderman and Carlyle’s Rubenstein Discuss Private Equity
- One Journalist’s Burden: Living a Week Without PE-owned Products
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
NEIMAN MARCUS’ SALE: THE NEW MODEL FOR CLUB DEALS IN PRIVATE EQUITY? In one of the biggest buyouts of the year, “Ares Management LLC and the Canada Pension Plan Investment Board agreed to buy the U.S. department store company” Neiman Marcus for $6 billion, writes Bloomberg. The New York Times DealBook adds that the buyers “will hold equal stakes in the company.” This is just the latest in a string of private equity deals characterized by fund managers teaming up with major limited partners intent on increasing direct investment. Interestingly, Ares/CPPIB is replacing a team that might be said to typify the old club model: Neiman Marcus’ sellers are two general partners, TPG Capital and Warburg Pincus, who paid $5.1 billion for the group in 2005. Meanwhile, the Financial Times reports that the Government of Singapore Investment Corporation, one of Asia’s biggest limited partners, “is poised” to equally divide a 60 percent stake in Rothesay Life, a manager of defined benefit plans, with private equity fund manager Blackstone.
WHY KKR AND OTHER MEGA-FIRMS CAN JUMP-START NEW PE STRATEGIES. In this two-minute video, Bloomberg’s Devin Banerjee delves into what is arguably the principal competitive advantage enjoyed by the globe’s handful of exceptionally large private equity fund managers: huge balance sheets. Using capital from the largest balance sheet in the industry - $6.9 billion - KKR & Co. is funding almost half of a new PE lending vehicle for the recovering global shipping industry, one of the hottest destinations for PE investment today. “KKR would certainly tout this as a strength - they can bring together their expertise and their capital to create a new offering,” says Banerjee. They’ve used their balance sheet in the past to seed new businesses and this is another example.” Mega-firms are building teams of specialists from scratch, diversifying their PE offerings and raising smaller but more numerous funds with the aim of improving their long-term sustainability as businesses.