Private equity racing for exits
Even before the surprise victory of Donald Trump in the US presidential election, private equity firms were exiting positions far earlier than expected, according to an analysis by this news service.
So far this year, 24 private equity firms have exited platforms after holding them for less than two years. In 2015, there were 46 such exits, a nearly 50% increase from 2014, when there were 33. Frequently, the portfolio companies in question were traded to other sponsors.
For example, Nautic Partners sold medical home care services company All Metro Health Care Services to One Equity Partners in February, after only 17 months. In August, Clearlake Capital sold Amquip Crane Rental to Apollo Global Management [NYSE:APO] after only 19 months. Terms of both deals were not disclosed.
A financial sponsor banker said that the strength of the debt markets has been a huge factor in fueling faster-than-usual private equity exits. “You’re seeing guys that bought businesses back in 2014 and 2015—even in the middle market—that have managed to double EBITDA in two years and are now getting out,” he said. While they could keep growing the businesses and hope to sell them at an even higher EBITDA multiple down the road, the credit markets are so strong now that it’s not worth the risk, he explained.
The election of Donald Trump has only exacerbated this situation. One private equity investor said the market is as frothy as he’s ever seen it. “People want to sell everything that’s not nailed down. Valuations are completely ridiculous right now and at some point interest rates will go up,” he observed.
Just about every sector was represented in the mix of speedy exits this past year, but packaging has been particularly prominent in this regard. This week, Novolex announced it will be acquired by The Carlyle Group [NASDAQ:CG]. Wind Point Partners acquired a majority stake in Novolex in 2012, but TPG Growth only purchased its minority stake in November 2015. Similarly, in October of this year, Wellspring Capital Management sold ProAmpac to Pritzker Group Private Capital after holding it for only 14 months. Packaging has long been a favorite subsector of PE, due to its attractive cash flow profile.
Among the deals where terms were disclosed, on 14 November, General Atlantic sold Too Faced Cosmetics to Estée Lauder[NYSE:EL] for USD 1.45bn after owning the company for only 17 months. And in June, Bain Capital sold Bluecoat Systems, a security and networking solutions company, to Symantec [NASDAQ:SYMC] for USD 4.65bn after only 15 months.