As stock markets suffered their worst week since 2008, and companies rushed to cancel events and reduce travel, there was one part of the economy that it seemed even coronavirus could not stop: private equity.
Thousands of dealmakers and investors, including industry titans such as Blackstone Group’s Steve Schwarzman and Carlyle Group’s David Rubenstein, spent last week at the SuperReturn conference in Berlin. The mood at the industry’s annual get-together was buoyant — even as similar events such as the Geneva Motor Show and Baselworld were cancelled amid virus fears.
Attendees dashed between suites turned into makeshift meeting rooms at the InterContinental Hotel, sat in packed halls for panel sessions, and then headed to the city’s top restaurants. There was a crowded karaoke night on Thursday; but the hottest ticket in town was Wednesday’s party in a train station-turned-event-space where R&B singer Usher and magician David Blaine performed.
Meanwhile, in a much quieter setting, some 300 miles west of Berlin, there was an even stronger sign of the industry’s apparently boundless enthusiasm as Europe’s biggest-ever buyout deal entered its final stages.
On Thursday evening — the conference’s final night — Essen-based Thyssenkrupp announced it had agreed to sell its elevator division to Advent and Cinven in a €17.2bn deal.
News of the deal’s record size raised eyebrows. Some rival buyout managers wondered whether the sale — and that year’s glitzy SuperReturn conference as a whole — might later be seen as the symbol of a market at its peak. “I think it might,” said one senior attendee. “Everyone says we’re late in the cycle.”
Private equity groups spent more on deals in 2019 than at any time since the financial crisis, according to data from Refinitiv, as dealmaking grew for a third consecutive year.
Even with public markets in turmoil, “what was clear was how strong the private equity marketplace continues to be”, said Jonathan Blake, head of international private funds strategy at law firm Herbert Smith Freehills. “The theme that developed over the week was, whether the coronavirus [will cause a] correction.”
As the Berlin event kicked off, a critical report on private equity returns dominated conversations. The report, by Bain & Company and a Harvard economist, found investors did better from tracking the S&P 500 over the past decade than by investing in US buyout funds.
But, as it became clear that public markets were on course for their worst week in more than a decade, some private equity figures noted with smugness that their returns were not looking so bad.
Asset prices have been high for years as money has flooded into private equity, creating competition for deals. The industry has a huge amount of so-called dry powder — money that investors have committed to hand over for deals but that buyout groups have not yet spent.
Dry powder hit a record high of $2.5tn in December across all fund types, according to the report by Bain & Co. Purchase price multiples reached a fresh high in the US of 11.5 times earnings, it found.
“With the stock market correction and the virus concerns you will likely see an adjustment of prices,” said Nikos Stathopoulos, a partner at private equity firm BC Partners. “There’s generally still a positive mood around private equity as an asset class.”
Buyout groups have spent much of the past year in the crosshairs of Democratic presidential hopeful Elizabeth Warren, who has accused them of “looting” and proposed to rein them in. Now, as Ms Warren struggles to break through in the early stages of the primaries, many dealmakers have settled on a consensus that Donald Trump will win a second term — an outcome they are more relaxed about.
Many executives put a brave face on deteriorating markets. Dry powder could be used to snap up bargains if conditions worsen. And some private equity groups with credit operations stand to benefit if the coronavirus continues to hurt the economy. “A downturn would not be a bad thing for Apollo,” the firm’s founder Leon Black said on stage at SuperReturn. “If you’re not prepared, you’re going to miss the opportunity.”
In quieter corners, however, concerns could be heard about how the industry would fare in a downturn. “We see red flags emerging” such as “leverage ticking up”, Blair Jacobson, co-head of European credit at Ares, said in a panel discussion on private credit.
“Whilst the mood was certainly buoyant, we must avoid complacency,” said Rob Lucas, a managing partner at the private equity firm CVC. “Whether it be coronavirus, technological disruption or a market correction, there is potential for material volatility. This is not necessarily a bad thing for private equity, as we are often at our best in volatile times, but it is a time when as investors we should be cautious.”
Meanwhile, coronavirus fears grew as the week-long event drew to a close. Private equity group HarbourVest emailed staff members after they arrived in Berlin to say they were free to leave if they feared being exposed to the virus. A section of the conference dedicated to Italian private equity was cancelled.
In a packed elevator, one delegate spoke Italian on the telephone before joking about flu symptoms — to which a fellow attendee responded that he had returned from China just a week ago.
Cue “Brave smiles all around”, tweeted Dörte Höppner, the former chief executive of lobby group Invest Europe.