CVC sits on $20bn war chest
CVC Capital Partners, the European private equity house that owns Formula One, has the biggest pile of cash to spend on leveraged buyouts, topping US rivals Apollo Global Management and Carlyle Group, as the industry prepares for an acceleration of deals this year.
The Luxembourg-headquartered fund manager, whose main office is in London, has an estimated $20bn of “dry powder” – unspent commitments from investors – according to data compiled by Preqin, the research company, in its annual report.
The sum includes €10.75bn raised last year for European and US deals, $2bn amassed for Asian investments and older commitments yet to be spent from the group’s previous flagship European fund, raised in 2008. Buyout houses have typically five to six years to invest cash that investors commit. If they fail to do so, they have to return it or seek an extension.
Private equity dry powder is piling up again after four years of decline following the financial crisis, when cash-constrained investors reduced new commitments. Preqin estimates the total cash available for leveraged buyouts globally surged to nearly $400bn last year, from $354bn in 2012, even though dealmakers found it hard to unearth bargains as stock markets reached all-time highs. After adding in other types of funds, targeting real estate, credit, infrastructure and venture capital, “dry powder” stands at a record $1.07tn.
New funds, combined with older commitments that will expire soon if not invested, record low interest rates and abundant debt financing, all point to an increase in new private equity buyout deals, Preqin says. Last year, the total value of new buyouts increased by two per cent to $258.4bn, including the debt that private equity groups typically use to fund their acquisitions. That was still less than half the 2007 level, according to Mergermarket.
But the insufficient supply of new deals means competition will be intense, said Graham Elton, head of Bain & Company’s private equity practice in Europe.
“The deal supply and demand imbalance has become something of a fixture, inflating prices,” he said. “Corporate buyers with large cash piles and a need for growth are coming back on the scene, creating yet another layer of competition for quality assets.”
Apollo, the New York-based group run by Leon Black, has an estimated $19.7bn war chest available for buyouts, consisting mostly of a $18.4bn fund closed this month – the largest raised since the credit crash. Washington-based Carlyle, which recently closed a $13bn vehicle for North American deals, has about $17.7bn of unspent pledges to invest in leveraged buyouts, while KKR has about $15.3bn, according to Preqin.
The large US groups, which have diversified beyond buyouts, top the dry powder ranking when all types of funds are included. Blackstone boasts an estimated $33.4bn of unspent commitments across its activities, including credit and real estate, according to Preqin. It is followed by Apollo, with $23.4bn, Carlyle and KKR.