NEW YORK: Private equity groups are increasingly choosing to exit investments through sales to trade buyers rather than initial public offerings or sales to their rivals, as they attempt to turn the resurgence in corporate dealmaking to their favour.
According to Dealogic, the data provider, the volume of private equity "exits" through sales to trade buyers has more than doubled compared to last year, from $37.3bn to $74.6bn globally.
Meanwhile, the volume of exits through public listings or secondary buy-outs has only increased slightly. The preference for "strategic sales" was highlighted recently when Cablecom, the Swiss cable operator, owned by Apollo Management, TowerBrook Capital Partners and the buy-out unit of Goldman Sachs, agreed to be sold to Liberty Media for $2.2bn, reversing a decision to proceed with an IPO.
Texas Genco, the US utility owned by a consortium of buy-out groups including Kohlberg Kravis Roberts, Blackstone, and others, was lately in advanced talks on being acquired by NRG Energy, a New Jersey-based rival, for about $5.5bn excluding debt. A deal, which would scupper existing plans for an IPO, could be announced soon, according to people familiar with the matter.
The return of trade buyers to the M&A landscape was widely seen as negative for the buy-out industry, because it would make auctions more competitive and drive up asset prices. It made it more likely that private equity deals might be broken up by an ambitious trade buyer that could pay more because of its ability to extract more cost-savings from a combination.
This concern was highlighted in August when an agreement by Ripplewood, the New York-based private equity group, to buy Maytag, the white goods maker, for $1.1bn, was broken up by Whirlpool, which made a successful offer of $1.7bn.
But investment bankers say the jump in "strategic sales" shows how nimble the buy-out industry's largest players have become.
Kamal Tabet, global head of the financial entrepreneurs group at Citigroup, says there are now more "dual track processes whereby private equity sellers will keep both the IPO and trade sale options open, literally until the last minute." He adds: "It is a clever way of maximising competitive tension."