‘Everything in UK is on sale,’ says US private equity executive
Ares Management’s Blair Jacobson expects US buyers to take advantage of weak British currency
The plummeting value of sterling means that “everything in the UK is on sale”, according to a top executive at US private markets giant Ares Management.
Blair Jacobson, co-head of European credit at Ares, said he “absolutely” expected to see US investors doing more deals in the UK to take advantage of the weak currency. “It’s a pretty big difference if you have US dollar-denominated funds,” he told the FT’s Due Diligence Live event in London on Wednesday.
A pioneer in private lending, Ares has financed a number of buyouts of listed companies after banks stepped back from the market. Traditional lenders retreated after struggling to sell on debt for deals that they committed to finance early this year.
The pound has been trading at its lowest levels against the US dollar since the 1980s in recent weeks after chancellor Kwasi Kwarteng announced a package of unfunded tax cuts in his September “mini” Budget.
US private equity groups have been on a UK dealmaking spree for several years. Clayton, Dubilier & Rice bought supermarket chain Wm Morrison last year and UK-listed security group G4S was taken private by its North American rival Allied Universal, which is backed by US buyouts group Warburg Pincus and the Canadian pension fund Caisse de depot et placement du Quebec. Blackstone bought Bourne Leisure, which runs Haven holiday parks, last year.
But such activity has slumped this year as the economic outlook has darkened and rising interest rates have made it harder and more expensive to borrow for deals.
Blair Effron, co-founder of the investment bank Centerview Partners, said at the FT event that private equity dealmaking would be the first to recover. “The first wave of M&A coming out of this is private equity-driven not corporate-driven,” he said, adding that he did not expect the pound to fall to parity with the dollar and that the UK would recover from what he called a “self-inflicted” economic blow.
Dealmaking is likely to increasingly involve listed companies being taken private, Jacobson said. “The delisting trend will continue . . . we’ve been major beneficiaries of that trend.”
Brad Hyler, a managing partner at Brookfield, said during the same panel that the same was true for listed real estate investment trusts in Europe. Rising inflation has made it more costly to construct new properties, Hyler said, making cut-price portfolios of buildings more attractive. However, he said, it was difficult to find financing for large deals.
Jacobson was also critical of what he called “absentee ownership” from US-based private equity groups that bought up UK companies and oversaw them from across the Atlantic without having an office in the country.
And he said negotiating the Takeover Panel’s requirements on buying UK-listed companies could be difficult. “You’re really limited in terms of the information you can get, the number of parties you can bring into the fold,” he said.
As the pension funds that have poured billions into private equity became increasingly unwilling or unable to keep doing so at the same pace, Jacobson said, private capital groups were turning to investors in the Middle East for new cash.
He had been in Saudi Arabia, Kuwait, Abu Dhabi and Dubai recently, he said. “They’re cash-rich” and are “taking a fairly long-term view”.