Private equity groups spent more on deals this year than at any time since the financial crisis, with dealmaking growing for a third consecutive year as the industry showed little sign of slowing down.
The value of buyout deals worldwide hit $478bn in 2019, up from $460bn a year earlier and the highest amount since 2007, according to data from Refinitiv.
Fuelled by cheap debt and large inflows of cash from pension funds and other investors seeking high returns in a low interest-rate environment, buyout groups are hungry for deals and willing to take on larger and more complex target companies.
“It has felt very busy,” said David Higgins, a private equity lawyer at Kirkland & Ellis in London. “Multiples have been high and there’s been a lot of competition for good assets. People feel the pressure to deploy all the equity they’ve raised.”
Mega-deals this year include Blackstone’s agreement in June to buy the US warehouses portfolio of Singapore-based GLP for $18.7bn in the largest private real estate deal in history.
Worldwide, private equity dealmaking made up 12 per cent of total M&A activity.
Apollo, Blackstone, KKR and Ares, some of America’s biggest private equity firms, have seen shares soar to record highs this year after switching from partnership to corporation status — a move that makes it easier for mutual funds and index trackers to own shares.
That has boosted the fortunes of some of the industry’s tycoons. Carlyle is set to switch on January 1.
Meanwhile, Swedish private equity firm EQT in September became the biggest buyout group to list for years, in a move that chief executive Christian Sinding said would give the firm “more power and more confidence”.
Buyout groups will need to invest record amounts of so-called “dry powder” — money raised from pension and sovereign wealth funds and not yet spent — after some of the biggest names in the industry such as Cinven in London and Advent International in the US raised their largest-ever funds.
The industry is already preparing for another busy year of dealmaking in 2020, with targets including Thyssenkrupp’s elevator business, which could potentially fetch as much as $20bn in what would be one of Europe’s largest-ever private equity deals, and Coty’s professional hair and nail products business, including Wella and Clairol, which may be worth about $9bn.
Private equity dealmakers were “feeling buoyant in general” and were “pretty excited” about a busy year ahead, said Kiran Sharma, co-head of the international practice group at the law firm Ropes & Gray in London. That was likely to include more deals to take listed companies private, she said.
The industry’s momentum came as some US politicians set it in their sights in the run-up to the 2020 election.
Elizabeth Warren, a Democratic presidential hopeful, published a “Stop Wall Street Looting” bill that accused the industry of loading companies with debt and causing workers, customers and communities to suffer if deals went wrong.
Her proposed new rules would make private equity groups responsible for the debts of the companies they owned, in effect banning the private equity model in its current form.
The value of deals to buy European companies fell 4 per cent to $130bn after three years of growth, the Refinitiv data showed, as wider M&A activity in Europe fell 25 per cent. In Asia, the value of private equity-backed deals fell 13 per cent to $96bn.
Some of the year’s biggest European deals saw UK-listed companies being taken private, including entertainment group Merlin, pub operator Ei Group and software company Sophos, as the weak pound made the deals more attractive to overseas groups.
However, several deals fell apart this year, as high company valuations, caused in part by the huge sums of money chasing deals, made investors balk at what may be the top of the economic cycle. The potential $15bn sale of Arconic, which made flammable cladding panels linked to the deadly Grenfell Tower fire in the UK, was one of the largest to fall through.
Buyout groups are being “a little bit more disciplined” about deals, said Michael Abraham, head of the financial sponsors group for Europe, the Middle East and Africa at UBS.
They were avoiding deals where “you need to assume sunshine every day for the duration of the investment”, he said. “We all know from 2006-07 experience what that leads to.”