Stephen Schwarzman also said that he was seeing “more than green shoots” of economic recovery, though the scale of growth through next year was still unclear.
Private equity firms have been hampered for more than a year since the credit crisis shut off their ability to tap financing for leveraged buyouts. The financial turmoil has also damaged the health of their portfolio companies. Economic recovery and a rebound in financing markets are key for the industry.
“We do not expect the U.S. economy to slip back into recession but we do believe that weak consumer spending and continued constraints on bank lending will dampen the U.S. economic recovery in 2010 and 2011,” Schwarzman said at the Super Return Middle East conference last week in Dubai.
While it would take several years before “freely flowing but responsible credit” was re-established, the private equity industry was in a “radically different place” than a year ago, given signs of life in the bank financing market, he said.
“We can certainly do transactions in the $3 billion to $4 billion range at this stage in the cycle,” he said on the sidelines of the conference. “And with low leverage involved, deals of that size can use in excess of $1 billion in equity.”
Blackstone struck a deal earlier this month to buy Anheuser-Busch InBev’s U.S. theme parks for up to $2.7 billion, adding to its amusement assets such as the Madame Tussauds wax museums, Legoland and the London Eye ferris wheel.
Schwarzman said now is an excellent time to purchase stable businesses in developed markets, but added it was still too early for cyclical companies. He sees opportunities to buy growth companies in Asia. Schwarzman said Blackstone was open to investing in the Middle East, and he sees the firm opening an office somewhere in the region. He declined to specify where.
Schwarzman said while he expects more deals ahead, Blackstone has been outbid by companies rather than private equity firms on several occasions recently.
In addition, Schwarzman said that the route to exiting acquisitions had opened, citing five sales, of which four are complete and one imminent. If all five are completed, Blackstone’s funds will receive about $2.8 billion in returns, he said.
In a letter to investors, obtained by Reuters, Schwarzman said these sales occurred at prices between 140% and 240% of Blackstone’s year-end 2008 valuations.
One recent exit is a deal struck in September to sell soft drink maker Orangina Schweppes to Japanese brewer Suntory.
Schwarzman said that he is evaluating the prospects for up to seven IPOs in addition to one—Team Health—which is already filed. The seven are spread across sectors and geographies, he said.
“No one knows how long the window will be open for IPOs,” he said. “Historically, it’s been a pretty streaky kind of market; and it responds well to the prospects for economic growth.” —Megan Davies, Reuters