Private equity bonanza fails to materialise
The holy trinity of abundant credit, buoyant stock markets and mounting cash piles in buyout funds has not yet translated into a bonanza of private equity deals.
Volumes of private equity transactions shrank 11 per cent, to $82bn, in the first quarter, compared with the same period a year earlier, according to data compiled by Mergermarket.
In the US, deal volumes fell 37 per cent against the first quarter of 2013, when activity was boosted by the $20bn leveraged buyout of Dell and the acquisition of Heinz. In Europe, volumes were down 5.7 per cent from an already low level a year earlier.
“Even though a lot of private equity groups are focused on putting money to work, there’s been fewer primary deals than people had hoped for,” says Harry Hampson, head of financial sponsors at JPMorgan in Europe. “That said, corporates are doing more acquisitions that will likely in turn lead to disposals and that should present opportunities for buyout funds.”
Ironically, by rushing to take advantage of high valuations on the stock markets to list companies and return cash to investors, the private equity industry has deprived itself of deal flow from so-called secondary buyouts – especially in Europe. For example, Carlyle is leaning towards a partial exit of Spanish certification company Applus through an initial public offering in Madrid, despite receiving an offer from BC Partners for 100 per cent of its shares.
The two largest private equity deals in the first quarter were not led by traditional buyout fund managers. Singapore’s investment agency Temasek bought a $5.7bn direct stake in AS Watson, while Starr Investment, a unit of Hank Greenberg’s insurance group, and Swiss-based fund manager Partners Group, acquired Multiplan from BC Partners, in a $4.4bn transaction.
But the pipeline of new deals is growing, says Alasdair Warren, head of European financial sponsors group at Goldman Sachs.
“As corporates look to deploy capital, we also expect they will start rationalising their own asset portfolios,” he argues. “There’s a lag effect of probably 6 months, but then the number of opportunities for private equity should improve.”