Wednesday, January 1, 2014

The PEU Year in Review

Seeking Alpha reported:

Private-equity firms are set to return over $120B to their investors for this year, surpassing the 2012 record of $115B, Cambridge Associates estimates.
The P-E sector has been assisted by low interest rates, which have helped P-E backed companies to sell $66.2B worth of debt in 2013 to fund dividends to their owners, up from $64.2B a year earlier.
The Fed's easy money policies and subsequent stock boom have also been a factor, with a record 94 companies with P-E investors bringing in $33.3B in IPOs.
The high payouts have helped buyout funds raise $143.5B in 2013, the most since 2008.
Blackstone (BX) and KKR (KKR) are among those to have benefited, while others include Carlyle (CG), Fortress Investment Group (FIG), BlackRock (BLK) and Apollo Global (APO). 
Add that the U.S. housing market is back and debt comes nearly covenant free and things look surprisingly like the last PEU boom.   Back then private equity underwriters (PEU's) did club deals to lower buyout competition.  Today's strategy is buying minority stakes in companies.  
With $585B of "dry powder" money to put to use in North America, private-equity firms are increasingly looking to take minority stakes in companies and partner with them rather than buy them outright.
Carlyle (CG) and Blackstone (BX) are among those taking such an approach, with the latter this week agreeing to purchase a 13% stake in Crocs for $200M.
The logic of the strategy is that full deals are expensive, competition for minority stakes is less, the transactions can be custom-made, and they often don't involve auctions.
PEU buying and selling of companies became ubiquitous in the last thirteen years. What luck do they have in store for the average citizen in 2014?  Bubble, bubble, boil and trouble...