- These 13 private equity deals showcased powerful trends that will shape the industry in the new year, according to conversations with dozens of insiders.
- The deals highlighted the emergence of private equity firms banding together more frequently to cover the equity check of a target company, as well as the increased scrutiny of the PE industry in public discourse.
- “It’s going to continue to be a challenging environment for [PE firms] to get good returns on the money they are investing,” said Brian Hamilton, a private equity partner at law firm Sullivan & Cromwell.
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2019 was the year some US politicians put the private equity industry in their crosshairs. And on the deal front, there was plenty of high-profile action to draw attention. From huge deals in terms of size, to smaller ones that provoked celebrities’ wrath, we wanted to find out which transactions this year should be remembered for.
We gathered as much from conversations Business Insider struck up in emails, phone calls, and sit-downs with dozens of PE execs and their advisers in recent months. Perhaps unsurprisingly, the dialogue naturally tended to drift toward the largest deals by volume.
This included Blackstone’s $18.7 billion acquisition of logistics assets from GLP — a deal underscoring a bet that more companies like Amazon will use warehouse storage — and EQT Partners’ $10 billion purchase of Nestle’s skin health care unit, which created a huge new dermatology company called Galderma.
But apart from sheer size, there were notable trends in how firms approached deals. One that emerged as top-of-mind for lawyers, bankers, and PE execs was the fact that multiple PE firms were increasingly banding together to cover the equity check of their target companies.
These so-called club deals were once popular in the lead-up to the financial crisis and observers said they were noticing a comeback, signaling a certain frothiness to the market.
Some recent deals included the $6.9 billion purchase of New Jersey commercial data provider Dun & Bradstreet, bought by a group of investors led by CC Capital, as well as the $3.4 billion acquisition of satellite company Inmarsat by Warburg Pincus, Apax, CPPIB, and Ontario Teachers Pension Plan.
Read more: ‘Some of the conversations we had in 2006 we are having again’: Bain and Carlyle are teaming up in rare deal that private equity has been reluctant to do since the financial crisis
But the more owners of a company there are, the more difficult a company can be to manage, especially in the event of a downturn when there can be disagreements about how to right the ship amid waning sales.
At the same time, the emergence of such deals signals the challenging nature of PE dealmaking: that prices for companies are getting higher and higher and firms are teaming up with competitors to put investor money to work.
“There is just not a lot of easy stuff left and there is so much money chasing deals,” said Brian Hamilton, a private equity partner at Sullivan & Cromwell whose clients have included Silver Lake and Goldman Sachs.
“It’s going to continue to be a challenging environment for [PE firms] to get good returns on the money they are investing,” he said.
Other insiders also were quick to note that club deals today were often confined to only two or three major buyers, as opposed to five or six that marked the 2000s. They also said that the terms of such deals were carefully structured so that the governance of an acquired company would be well-organized in the case of a downturn.
“There is a lot more thought put into that governance,” said Brenda Rainey, a consultant at Bain & Co, noting that PE execs were trying to reach consensus on who was in the driver’s seat on actions to take with the business post-close.
Nevertheless, the more private equity firms are getting involved in leveraged buyouts, the more their business practices are expected to come under scrutiny in 2020, says Tom Whelan, a PE partner at McDermott Will & Emery.
Whelan, whose clients have included Fortress and General Atlantic, said that the “the ability of the larger funds to club together to buy substantial, listed companies” — and their resulting “economic firepower” — naturally draws the attention of politicians and other stakeholders concerned about how target companies will be affected.
“Sponsors should be mindful of the need to demonstrate as part of any large bid that they are a force for good as an owner, whether through good governance, good citizenship, or through job and wealth creation,” he said.
Publicity, however, is not only a factor in multi-billion dollar deals.
In fact, some off the smaller deals throughout the year got the most press attention and pointed to some of the biggest trends in PE.
It was a more than $300 million minority stake The Carlyle Group took in Ithaca Holdings that financed talent manager Scooter Braun’s purchase of Big Machine Label, which drew the ire of country-pop music icon Taylor Swift.
Swift, whose music is owned by Big Machine Label and was bought by Braun as a result of the deal, objected to the transaction and called out Carlyle in helping Braun acquire the rights to her music.
Read more: Private-equity giant Carlyle just used an unusual approach to clinch a big-time music deal with Rascal Flatts and Taylor Swift
In a speech at the Billboard Women in Music event this month, Swift called private equity’s influence in the music industry “a potentially harmful force” and that firms were “buying up our music as if it is real estate.”
The kerfuffle, which started over the summer, gave politicians new material to criticize the PE industry, with Rep. Alexandria Ocasio-Cortez piling onto the discourse, holding up the dispute as an indictment on the “predatory” nature of the industry.
Other types of smaller PE deals, meanwhile, pointed to less potentially controversial trends — namely, that firms are targeting smaller companies, and sometimes settling for minority stakes.
For instance, Blackstone launched a whole division focused on growth equity, seeking deals of between $200 million to $500 million. And Goldman Sachs, one of the lead investment banks advising private equity, is assembling a team of senior bankers focused on the middle-market.
With both big and small PE deals taken into consideration, below are some of private equity’s highlights from 2019.