Private equity breaks records with multi-billion M&A deals

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(Bloomberg) – The private equity industry is on a spending spree like never before.

Buyout barons Blackstone Group Inc., Apollo Global Management Inc., KKR & Co. and others represent a record 30% of global deals this year, with deal flows and fundraising near all-time highs.

Investors are overflowing with cash and looking to put their money to work. In the United States, a private equity syndicate recently announced one of the biggest debt buyouts of all time. And in the UK, PE funds have been the most active since the financial crisis, targeting well-known names including grocery chain Wm Morrison Supermarkets Plc. By mid-2021, the industry had amassed a record $ 3.3 trillion in unspent capital, including $ 1 trillion held in buyout funds, giving it significant firepower for further acquisitions. .

“There are many funding and investment opportunities that have created a real private equity boom,” said Meziane Lasfer, professor of finance and private equity researcher at Bayes Business School in London. “The more private equity firms buy out companies, the more they grow, the more liquidity they can draw from their investments, the more opportunities they can seize.”

The industry’s success, however, is under closer scrutiny by authorities around the world, potentially limiting future returns.

Balance sheet

The industry has nearly tripled in size since the start of 2011. By combining the value of stock transactions, exit value and fundraising, the sector is on track to surpass $ 1 trillion by the end. of the year, Hugh MacArthur, head of global private equity at Bain & Co., wrote in July.

While critics say managers are simply extracting as much cash as possible from highly leveraged and vulnerable companies, fans like to point out the industry’s track record of growing companies while outperforming stocks. The performance of the industry is difficult to measure. Academic research on this point is mixed and there is no agreement among investors on a standard metric.

Money flows show little sign of slowing down. Private equity is now starting to thrive in the retail market by rolling out products for private investors with the hope of tapping into a savings pool worth over $ 74 trillion.

New records

The biggest names in the buyout have turned to credit, real estate, infrastructure and other areas, leading to new records in fundraising.

New York-based KKR single-handedly raised a record $ 59 billion in the second quarter through its various private market strategies. Carlyle Group Inc. is looking to raise up to $ 27 billion for its latest flagship fund, in what would be the largest private equity pool ever.

The last asset class everyone wants are the secondaries: vehicles that focus on buying existing portfolios of private equity holdings from investors who wish to exit before the funds mature.

Secondary companies also step in to buy out existing investors when fund managers wish to continue to hold an asset beyond the life of the fund. Latest transaction: In mid-September, CVC Capital Partners agreed to acquire secondary buyout specialist Glendower Capital for $ 8 billion.

The dynamism of the industry in different investment strategies has helped to push the overall assets under management of leading managers to levels exceeding many leading mutual fund companies.

Bigger targets

With bigger funds comes bigger deals. Private equity is gradually creeping into transactions that were previously the prerogative of large corporations or sovereign wealth funds.

By teaming up, several private equity funds and key investors can pool their resources to tackle ever more ambitious goals. This is what happened in June when Blackstone, Carlyle and Hellman & Friedman, alongside GIC Pte of Singapore, announced in June a majority stake in Medline Industries Inc. in an agreement of a worth over $ 30 billion.

The proliferation of private credit funds that stepped in after the financial crisis to replace banks in some of the riskier credit areas has also contributed to the increase in increasingly large transactions.

UK access point

The UK has been a center of transaction activity. Thanks to a permissive takeover code, a hands-off government approach and cheap valuations, the UK is on track for its busiest private equity year since the financial crisis .

Right now, Clayton Dubilier & Rice LLC, Fortress Investment Group and others are trying to buy the top pillar Morrison. Meanwhile, UK authorities are investigating another PE deal, an offer from Cobham Ltd., owned by Advent International Corp. to buy rival Ultra Electronics Holdings Plc, for reasons of national security.

Future problems

Certainly, while there is little to stop the influx of money into private equity, the growth of the sector is increasingly attracting the attention of regulators and politicians.

In the United States, leading Democratic Party members are debating measures that would make it more difficult to increase leverage on transactions, as well as end tax breaks for fund managers. In the UK, a mid-market tabloid’s ongoing campaign against private equity deals shows how the once-obscure industry is beginning to attract more hostile media.

More importantly, China has announced a crackdown on private equity funds raising money directly from domestic retail investors. This effort could significantly reduce the number of global fundraisers.

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