Private equity dealmaking has soared to its highest level since the lead-up to the global financial crisis, and there is no end in sight to the buyout boom as companies chase investment opportunities for a record amount of unspent cash that totals almost $2.5tn.
Activity in the first half of 2019 has been swollen by a series of $10bn-plus megadeals, undeterred by volatile financial markets, a slowdown in global growth and rising trade tensions.
Deal appetite at leveraged buyout shops such as KKR, Blackstone and Brookfield has been fuelled by the enormous pile of so-called dry powder, which they have raised from pension and sovereign wealth funds and not yet spent, and by still-cheap borrowing costs that make it easy to finance takeovers.
Data provider Preqin estimates $2.44tn of dry powder is at the ready to buy companies, real estate, infrastructure, natural resources and debt.
Tens of billions of dollars more are being raised for new funds, giving private equity groups even more dealmaking ammunition.
The value of leveraged buyouts climbed to $256bn in the first six months of 2019, the second-largest first-half on record, according to data provider Refinitiv, eclipsing even the pace in the boom year of 2006 when private equity groups targeted household names such as casino group Harrah’s and US radio operator Clear Channel.
Private equity dealmaking has accounted for 13 per cent of global acquisition activity so far this year, the highest level since 2013.
“Deal volume in private equity has been very good. A number of transactions have kept the machine going,” said Simona Maellare, the global head of financial sponsors at UBS, the team that advises and finances private equity deals. “I expect the second half of the year will follow the same pace of the first half. Deals can be financed, competition for assets is vivid, everyone has a lot of money.”
The build-up of capital has prompted leveraged buyout shops to get more aggressive in their takeovers. Leverage levels are rising on deals, in part thanks to a more relaxed attitude from US regulators, and the takeovers themselves have become larger.
Four private equity deals have eclipsed $10bn in size this year already, matching the number of megadeals clinched in 2018 as a whole.
Those giant transactions include Blackstone’s record $18.7bn takeover of the US warehouses portfolio of Singapore-based GLP, the biggest private real estate deal in history, as well as EQT’s $10.1bn purchase of Nestle’s skincare unit and the $14.3bn sale of fibre optic cable owner Zayo Group to Digital Colony Partners and EQT.
The buyouts come as private equity groups across the globe amass ever-greater firepower in new multibillion-dollar funds. London-based Cinven recently raised €10bn for its latest flagship fund and Boston-based Advent International collected $17.5bn from investors. Luxembourg-based CVC is seeking to raise more than €18bn for what would be Europe’s largest ever private equity fund at launch next year. Its rival EQT is looking to raise about €14bn by 2020.
“There has been a significant amount of fundraising among the big private equity groups in the past two years,” said Rob Pulford, Goldman Sachs’ head of financial and strategic investors group for Europe, the Middle East and Africa. “Several have deployed their new funds quickly and are now getting ready to come back to market again, there is no let-up in the pace of fundraising.”
Despite the record amount of unspent capital, several attempted buyouts have fallen apart. In May, the attempted €5.7bn acquisition of online classifieds group Scout24 by Blackstone and Hellman & Friedman collapsed after shareholders of the company refused to support the offer.
But those failures are unlikely to dent buyout enthusiasm, with a number of large deals still expected to be agreed this year. Private equity groups Carlyle and Bain have held discussions to acquire lighting technology group Osram for €4bn, while buyout funds have lined up bids to buy out Bayer’s $9bn animal health business.
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