The high levels of secondary buyouts in Europe are not a sign of good health for private equity industry, feels Blackstone Group L.P. (NYSE:BX)’s global head of private equity.
Joseph Baratta of The Blackstone Group L.P. (NYSE:BX) feels the increasing popularity of private equity firms buying assets from each other, known as secondary buyouts, doesn’t mean the market is healthy.
Jim O’Shaughnessy: Fear Signals Created By The Reptilian Brain
ValueWalk's Raul Panganiban interviews Jim O’Shaughnessy, Chairman, Co-chief Investment Officer, and Portfolio Manager at O’Shaughnessy Asset Management. In this part, Jim discusses the fear and emotional signals created by the reptilian brain. Q1 2020 hedge fund letters, conferences and more That's very cool. For the factor to try to seek the reason why it works, Read More
Secondary buyouts more than primary buyouts
The Blackstone Group’s private equity chief said at a Bloomberg summit in London that right now in Europe, about 75% of deals above $500 million in enterprise value are sponsors selling to each other, which is not a sign of good health in European market.
According to research by law firm Allen & Overy, secondary buyouts have been increasingly popular as an exit route this year. The first three quarter of the year witnessed over $29.9 billion in secondary buyouts in Western Europe as compared to just $27.6 billion in primary buyouts for the same period.
Baratta laments lack of corporate M & A
Blackstone’s global head of private equity points out that currently there is an abundance of cheap credit. However, lack of corporate M & A is a stumbling block for European private equity.
He believes there is a general feeling that Europe is out of favor as there is very little primary private equity deal flow. He went on to state that the way the private equity market is operating in Europe is problematic.
Baratta advocates large-scale resumption of corporate M & A as he feels that’s the lifeblood of private equity business. He believes large corporate mergers result in non-core asset sales, which points to a healthy functioning of private equity market.
Large secondary deals
As reported earlier, out of the ten largest funds private equity to hold a final close in the third quarter of 2013, only CVC European Equity Partners VI and Perella Weinberg Real Estate Fund II had Europe as a fund focus. CVC represents a dominant 63 percent of capital secured by Europe-focused funds that closed during the third quarter of 2013.
In April, CVC Capital Partners completed the buyout of meeting servicing company Ista from Charterhouse Capital Partners valuing the company at 3.1 billion euros. This is one of the largest private equity deals of the year where sales have been made to other buyout firms.
The Blackstone Group L.P. (NYSE:BX) chief believes that in certain asset classes, Europe offers a once-in-a-generation opportunity, though it is not in private equity space. He points out real estate, consumer loans, and assets owned by banks offer tremendous opportunity for their markets.