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You know the score already: money is gushing into private equity. Consider the news flow from just the past several days alone.
Ares, the Los Angeles-based alternative asset manager, raised €6.5bn in what became Europe’s largest direct lending fund.
Blackstone is aiming to raise $20bn in its latest PE fund, according to Bloomberg. (Its new frontman, Jon Gray, is pictured below)
Carlyle, the US buyout group, just raised North America’s largest ever fund at $18.5bn, breaking through its original $15bn target. (Separately, it is asking investors to pitch in with a total of $4bn to invest in oil and gas assets outside the US.)
We’re just at the letter ’E’ in the industry, but you get the point. As you’d imagine, the deals are getting bigger as well.
In the US, Blackstone struck the largest PE deal in a decade after purchasing the financial terminals and data business unit of Thomson Reuters in a $17.3bn deal. In Europe, Carlyle bought the chemicals unit of Akzo Nobel in a €10.1bn deal, the company’s largest on the continent and one of the largest PE transactions in a decade.
Now, four large private equity groups, including Leon Black’s Apollo, are looking to get their hands on Arconic, the aluminium products company.
And in Asia, KKR is reportedly interested in placing a $14bn bid for Yum China, the US-listed operator of KFC.
So is the sector in a bubble? DD’s Javier Espinoza sat down with Aimee Keane to answer that question in the latest episode of the FT podcast Behind the Money.
They travelled back in time to 2007 when the sector was riding high, fuelled by cheap debt, record cash raised, and the largest leveraged buyouts in history . . . just like today.
With a record $1.8tn in pension and sovereign wealth fund money waiting to be invested, they asked: when will the music stop? In the words of a PE executive in London: “Private equity is back.”
Intelligent curation and exclusive information: This is Due Diligence, the FT’s daily briefing on corporate finance, private equity and M&A. DD is delivered to your inbox Tuesday-Friday at 5am UK time. Meet the team, catch up on previous editions and sign up here. Get in touch with us: Due.Diligence@FT.com
Saudi sovereign wealth fund taps banks
Banks have been tripping over themselves once again to get a piece of the action in Saudi Arabia. (Case in point: outgoing Goldman Sachs boss Lloyd Blankfein has tweeted only six times since mid-March. Here’s one tweet he felt he needed to share with the world.)
But this time, it’s up to the kingdom’s sovereign wealth fund, which is in talks with global banks to borrow between $6bn and $8bn. DD is told it could end up taking even more, as the Public Investment Fund of Saudi Arabia readies to ink what will be its first loan.
Bankers are due to submit their first pitches to the PIF on Wednesday, according to DD sources. The fund has already drummed up intense interest from major commercial banks, who see the financing as critical in establishing a long-term relationship with the Saudi government and with the investment fund.
The PIF is expected to become a more traditional borrower, eventually relying on the bond and bank loan markets to provide part of its funding. That is heaven-sent for bankers sussing out new clients, especially as bond originations have slowed this year.
Read more in our story here and watch carefully over the coming weeks. It won’t be a quiet August for lenders hoping to make money in Riyadh over the next few years.
China learns the hard way about the football business
“Route one” is a none-too-pretty approach to the beautiful game, often associated with English football teams of past decades, in which defenders hoof the ball downfield in the vague hope that one of their attacking teammates might receive it and fashion a goalscoring opportunity.
For those who call it soccer, imagine an NFL team that attempted “Hail Mary” passes from start to finish, rather than merely in the dying minutes.
Many Chinese investors seem to have adopted these tactics when they went on a breakneck $2.5bn spending spree in European football from 2014 to 2017, acquiring stakes in or ownership of more than 20 clubs from giants such as AC Milan and Manchester City to lower-league minnows such as Northampton Town and FC Sochaux-Montbéliard.
Some got lucky, including insurance-to-tourism conglomerate Fosun, which acquired English second-tier club Wolverhampton Wanderers for $58m in 2016 and saw the team promoted to the big-money Premier League in May, earning it a $130m plus TV rights payday.
But the Chinese government was alarmed over the number of “irrational” — in its words — punts on European football teams and called for a halt to such acquisitions in August last year. It was part of a broader crackdown on outbound deals that were draining forex reserves without necessarily helping the Communist party’s development goals.
The policy shift made it hard for Chinese owners to get money out of China and killed off their plans to monetise their football assets by listing them in China or using them as security to raise funds in the formal or shadow banking markets.
Since then, five Chinese-backed teams have seen their owners sell all or part of their stakes. Most notable was Wanda’s Wang Jianlin, who exited Atlético Madrid with a small profit.
The less well-known owners of AC Milan and Aston Villa, Li Yonghong and Tony Xia respectively, sold control of their clubs after struggling under the burden of the debts they amassed while acquiring them.
So what’s the lesson? More due diligence, of course, would have helped some of the club sellers have a better idea about whether their counterparties really were “big in China”.
Whether you are Chinese, Russian or American, investing in sports teams is often a big gamble. But there are more — and less — sensible ways to mitigate the risks.
If Chinese investors want to impress football fans and all-powerful head coach President Xi Jinping enough to turn on the investment tap again, they will need to show more skill in their M&A gameplay and a lot less “hit-it-and-hope”.
Here’s south China correspondent Ben Bland’s take on the mess.
Generali, Italy’s biggest insurer, has lost its second chief financial officer in 18 months with Luigi Lubelli quitting the company. He will be replaced by Cristiano Borean, the CFO of Generali’s French business. ( FT)
SoftBank’s Vision Fund has hired Deutsche Bank’s Ziyad Al Ashaikh to help manage its business in Saudi Arabia, Bloomberg reported.
Sony Pictures Entertainment has hired Time Inc M&A veteran Erik Moreno as its executive vice-president of corporate development and M&A.
Australian private equity house BGH Capital has poached Jonathan Chamberlain from Blackstone, AFR reported.Chamberlain was a managing director for Blackstone in Australia.
Salvatore Ferragamo has named Micaela le Divelec Lemmi as its new chief executive.
Governance gulf Six months after Arif Naqvi handed over control of Abraaj’s fund business, the Dubai-based private equity firm is being broken apart as a court-appointed liquidator oversees a restructuring. What’s more, Naqvi’s fall from grace has dredged up scrutiny on the standards of corporate governance in the oil-rich Gulf. ( FT) Also, read this Bloomberg report for an inside look at Abraaj.
China’s baddest bank If you think conditions are bad for China’s biggest banks, check out what’s happening to the country’s small regional lenders. For years small banks have thrived on shadow lending. But now the jig is up and the bad debt must be recognised. ( FT)
Young Successors Programme Afraid your twenty-something-year-old is going to squander the family millions? Better put her in rich camp, a programme designed by banks like UBS, Citi Private Bank, Morgan Stanley and Credit Suisse to help the next generation of the ultra wealthy maintain their family fortunes. (Bloomberg)
Beer pong Bankers hanging out in Hong Kong’s IFC 2 tower (UBS, BNP) will make sure to drop into Pong at the IFC rooftop mall, where they can blow off some summer steam with the eponymous drinking game and some $20 cocktails served in glass skulls. (SCMP)
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Arash Massoudi in London — @ArashMassoudi
Javier Espinoza in London — @JavierespFT
James Fontanella-Khan in New York — @JFK_America
Sujeet Indap in New York — @sindap
Don Weinland in Hong Kong — @donweinland
Eric Platt in New York — @EricGPlatt
Lindsay Fortado in New York — @lindsfortado
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