The one-upmanship that has characterised private equity fundraising for the past year continues. Blackstone raised the stakes last week with a new global record: the first close on the firm’s latest vehicle was US$10.3bn, with sources close to the fundraising claiming initial expressions of interest had been raised to the tune of US$15bn. Rival KKR closed on its second European vehicle too, a €4.5bn fund that exceeded target by €1.5bn.
The driving force behind the scale of the interest in private equity is clear. European buyouts are delivering IRRs of 12.3%, compared to 9.5% for private equity as a whole, while top quartile returns are running at 28.7% against 23.3% for the asset class overall. That is fairly impressive by any standards – it certainly beats a lot of hedge fund returns this year. But the scale of the fundraising more than ever before polarises doubts about where the proceeds will be invested.
The tally continues to rise, as strategic buyers take on ever more resonance as competitors in auctions. Blackstone can relate to that, having lost out to trade buyers in both the auctions for Spanish telecom Amena as well as Cesky Telecom. The secondary buyout, another important feature of the past year, is also undermined by returning cash-rich strategics, while a growing number of companies are passing into private equity hands for the third or fourth time notwithstanding the growing number of corporate buyers.
One such case is Frans Bonhomme. Cinven has acquired the French pipes distributor from a consortium including Apax. The business has been well worked over by a number of private equity owners in the past, raising questions about potential for future value creation as benign conditions and liquidity in the debt markets continue to push up valuations. The latest sale is the fourth buyout of the company, a process that has seen Frans Bonhomme bounce between the portfolios of Apax and Cinven and their various co-investors.
The flip side to this is that trade buyers are more friend than foe when the equity market is weakening and assets are ripe for investment. Eurazeo, Spectrum, Texas Pacific, Cinven and Goldman Sachs can relate to that. They have just shelved plans for a secondary placement as part of the Eutelsat IPO.
Investor resistance in the public market forced the company to cut the price range on the primary portion of the IPO by 20%. The secondary element has been scrapped altogether save for the greenshoe. That’s goodbye to a share in a €827m payment for the firms and their investors, although it’s not all gloom, as the sponsors have already milked the debt markets through a recap in March. There are at least six other VC-backed IPOs in the pipeline preparing to run the gauntlet.