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- These 13 private-equity deals showcase powerful trends that will shape the industry in the new year, according to conversations with dozens of insiders.
- The deals highlighted the emergence of private-equity firms banding together more frequently to cover the equity check of a target company, as well as the increased scrutiny of the private-equity industry in public discourse.
- “It’s going to continue to be a challenging environment for [PE firms] to get good returns on the money they are investing,” Brian Hamilton, a private-equity partner at the law firm Sullivan & Cromwell, said.
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2019 was the year some US politicians put the private-equity industry in their crosshairs. And on the deal front, there was plenty of high-profile action to draw attention. From huge deals in terms of size to smaller ones that provoked celebrities’ wrath, we wanted to find out which transactions this year should be remembered for.
We gathered as much from conversations we struck up in emails, phone calls, and sit-downs with dozens of private-equity execs and their advisers in recent months. Perhaps unsurprisingly, the dialogue naturally tended to drift toward the largest deals by volume.
This included Blackstone’s $18.7 billion acquisition of logistics assets from GLP — a deal underscoring a bet that more companies, like Amazon, will use warehouse storage — and EQT Partners’ $10 billion purchase of Nestlé’s skin-healthcare unit, which created a huge new dermatology company called Galderma.
But apart from sheer size, there were notable trends in how firms approached deals. One that emerged as top of mind for lawyers, bankers, and private-equity execs was the fact that multiple private-equity firms were increasingly banding together to cover the equity check of their target companies.
These so-called club deals were once popular in the lead-up to the financial crisis, and observers said they were noticing a comeback, signaling a certain frothiness to the market.
Some recent deals included the $6.9 billion purchase of the New Jersey commercial data provider Dun & Bradstreet, bought by a group of investors led by CC Capital, as well as the $3.4 billion acquisition of the satellite company Inmarsat by Warburg Pincus, Apax, CPPIB, and Ontario Teachers’ Pension Plan.
But the more owners of a company there are, the more difficult a company can be to manage, especially in the event of a downturn, when there can be disagreements about how to right the ship amid waning sales.
At the same time, the emergence of such deals signals the challenging nature of private-equity dealmaking — prices for companies are getting higher and higher, and firms are teaming up with competitors to put investor money to work.
“There is just not a lot of easy stuff left and there is so much money chasing deals,” Brian Hamilton, a private-equity partner at Sullivan & Cromwell whose clients have included Silver Lake and Goldman Sachs, said.
“It’s going to continue to be a challenging environment for [PE firms] to get good returns on the money they are investing,” he said.
Other insiders were also quick to say that club deals today were often confined to only two or three major buyers, as opposed to the five or six that marked the 2000s. They also said the terms of such deals were carefully structured so that the governance of an acquired company would be well-organized in the case of a downturn.
“There is a lot more thought put into that governance,” Brenda Rainey, a consultant at Bain & Co., said, adding that private-equity execs were trying to reach consensus on who was in the driver’s seat on actions to take with the business post-close.
Nevertheless, the more private-equity firms are getting involved in leveraged buyouts, the more their business practices are expected to come under scrutiny in 2020, Tom Whelan, a private-equity partner at McDermott Will & Emery, said.
Whelan, whose clients have included Fortress and General Atlantic, said the “the ability of the larger funds to club together to buy substantial listed companies” — and their resulting “economic firepower” — naturally drew the attention of politicians and other stakeholders concerned about how target companies would be affected.
“Sponsors should be mindful of the need to demonstrate as part of any large bid that they are a force for good as an owner, whether through good governance, good citizenship, or through job and wealth creation,” he said.
Publicity, however, is not a factor only in multibillion-dollar deals.
In fact, some of the smaller deals throughout the year got the most press attention and pointed to some of the biggest trends in private equity.
It was a more than $300 million minority stake The Carlyle Group took in Ithaca Holdings that financed the talent manager Scooter Braun’s purchase of Big Machine Label, which drew the ire of the country-pop-music icon Taylor Swift.
Swift, whose music is owned by Big Machine Label and was bought by Braun as a result of the deal, objected to the transaction and called out Carlyle in helping Braun acquire the rights to her music.
In a speech at the Billboard Women in Music event this month, Swift called private equity’s influence in the music industry “a potentially harmful force” and said firms were “buying up our music as if it is real estate.”
The kerfuffle, which started over the summer, gave politicians new material to criticize the private-equity industry, with Rep. Alexandria Ocasio-Cortez piling on to the discourse, holding up the dispute as an indictment on the “predatory” nature of the industry.
Other types of smaller private-equity deals, meanwhile, pointed to less controversial trends — namely, firms are targeting smaller companies and sometimes settling for minority stakes.
For instance, Blackstone launched a whole division focused on growth equity, seeking deals of between $200 million to $500 million. And Goldman Sachs, one of the lead investment banks advising private equity, is assembling a team of senior bankers focused on the middle market.
With both big and small private-equity deals taken into consideration, below are some of private equity’s highlights from 2019.
Investor group buys commercial-data provider for $6.9 billion
Buyer: Consortium led by CC Capital, Cannae Holdings, Bilcar, Black Knight, and Thomas H. Lee Partners
Target company: Dun & Bradstreet
The upshot: The deal, which closed in February, set the tone for the year as a multibillion-dollar transaction with a group of large investors.
Onex Corp. takes WestJet private in $2.6 billion deal
Buyer: The Canadian private-equity firm Onex Corp.
Target company: Canada’s second-largest carrier, WestJet
The upshot: Taking an airline private is rare. And this deal reshaped the competitive landscape.
“As far as competitive economics go, WestJet should be able to be a real competitor to Air Canada,” Brian Sumers, the senior aviation business editor at Skift, said.
“The country is probably big enough for two global airlines, and in fact, it had two before 2000, when Air Canada bought out Canadian Airlines.”
Blackstone and Lego’s founding family buy amusement-park company
Buyer: Blackstone; Kirkbi, Lego’s founding family; and Canada Pension Plan Investment Board
Target company: Merlin Entertainments, the second-largest operator of visitor attractions
The upshot: At $7.5 billion, it was one of Blackstone’s largest investments of the year and signaled that despite so many technological changes sweeping big business, some good old-fashioned fun still is a tried-and-true profit maker.
Blackstone President Jon Gray said in a third-quarter earnings call that the firm is “a big fan around live entertainment because even though many things are moving online, people still need physical activities.”
Other investments in the live-entertainment sector in 2019 include the Bellagio and Great Wolf Resorts, he said.
Blackstone buys $18.7 billion of US logistics assets from GLP
Target: US logistics assets from the investment manager GLP
The upshot: Blackstone placed a big bet on companies like Amazon using warehouses to store their products as retailers go digital.
The Carlyle Group buys $300 million minority stake in Ithaca Holdings
Buyer: Ithaca Holdings
Target: Big Machine Label
The upshot: It was a rare private-equity deal in that The Carlyle Group agreed to a minority stake in Ithaca Holdings, supporting its purchase of Big Machine Label with more than $300 million.
Typically, private-equity firms like to take control of companies they are invested in.
Then, the deal became even more of an outlier when the country-pop-music star Taylor Swift became furious that the rights to her music were being bought by the talent manager Scooter Braun, with whom Swift had sparred in the past.
Swift’s public outcry about her music being brought under new ownership — both on social media and at this month’s Billboard Women in Music awards — has cast an unusual spotlight on private-equity influence.
In a speech at the event, Swift said private equity was a “potentially harmful force” to the music industry and that private-equity firms were “buying up our music as if it is real estate, as if it is an app or a shoe line.”
London Stock Exchange acquires Blackstone-owned Refinitiv
Buyer: London Stock Exchange
The upshot: One of the biggest private-equity deals of the year was the acquisition of Refinitiv by the London Stock Exchange.
The $27 billion deal came together after Blackstone carved out the data company from Thomson Reuters in 2018 and then overhauled the company through a series of layoffs and hires, and taking public an electronic trading platform Refinitiv owned.
The deal, which leaked in July, brought a new competitor in the financial-data industry and was viewed as a win for Blackstone, which appeared set to double its money only 10 months after it bought Refinitiv.
Goldman Sachs agrees to buy MyEyeDr for $2.7 billion
Buyer: Goldman Sachs
Target: Capital Vision Services
The upshot: Goldman Sachs’s efforts to build out its alternatives unit has raised eyebrows in the private-equity world because, in some cases, it can mean that the investment bank goes head to head with private-equity firms it typically advises as clients in an M&A advisory capacity.
That’s why Goldman Sachs’ purchase of Capital Vision Services, the parent company of the MyEyeDr optometry center, fueled discussion in the finance world about Goldman Sachs’ efforts in the private-equity game.
Goldman Sachs bought the company for $2.7 billion, including debt, from the private-equity firm Altas Partners LP and the Canadian pension fund Caisse de dépôt et placement du Québec.
Blackstone buys MagicLab, owner of dating app Bumble
The upshot: Blackstone has done some growth-equity investments in the past, but it hasn’t devoted an entire division within the firm to the effort until now.
Under Blackstone Growth Equity, in which the new hire Jon Korngold is targeting fast-growing companies, it was able to clinch a $3 billion controlling stake in MagicLab, the owner of the dating app Bumble.
The deal was funded by Blackstone Growth Equity, along with two other funds: Tactical Opportunities and its private-equity unit.
Korngold will continue to work closely with those divisions in seeking out future deals as he looks to write checks of between $200 million and $500 million.
The firm’s launching of the division served as the latest sign that private-equity firms were continuing to expand beyond their roots of leveraged buyouts and into other asset classes, like credit, infrastructure, and growth equity.
KKR reported to be in talks to take Walgreens private
The upshot: Bloomberg reported that KKR was seriously considering a take-private that could have been the largest leveraged buyout in history, at $70 billion, for Walgreens.
That hasn’t happened, and insiders said that any prospective deal could be too pricey even for KKR.
Still, even news of its possibility points to the fact that private-equity firms are looking at bigger and bigger deals as more money flows into the private markets.
Apax and Warburg team up to buy British satellite company Inmarsat for $3.4 billion
Buyer: Investor groups including Apax Partners, Warburg Pincus, Canada Pension Plan Investment Board, and Ontario Teachers’ Pension Plan.
Target: British satellite company Inmarsat
The upshot: The purchase of Inmarsat marked one of the biggest-ever deals to delist a UK company.
It also served as another example of multiple private-equity firms coming together to pool resources for an investment.
Swedish PE firm EQT buys Nestlé’s skin-health unit for $10 billion
Buyer: A group of investors led by the Swedish private-equity firm EQT
Target: Nestlé Skin Health
The upshot: The deal was one of the largest by volume of the year, with a consortium led by EQT, a wholly owned subsidiary of Abu Dhabi Investment Authority, buying the skin-health unit from Nestlé for $10 billion.
Rebranded as Galderma, the business specializes in the research, development, and marketing of dermatological treatments.
The deal came after Nestlé was under scrutiny from the activist investor Daniel Loeb’s Third Point, which demanded an overhaul of the company’s business.
Advent moves to take over defense and aerospace group Cobham for $5 billion
Buyer: Advent International
Target: Defense and aerospace group Cobham
The upshot: The deal is one of the largest and most complex take-privates of the year, and it’s still ongoing.
The Financial Times reported in September that Advent agreed to pay $5 billion for the British-based Cobham, known for pioneering air-to-air fuel technology.
But the proposed deal is being challenged by the founding family of Cobham, highlighting how national-security issues can come into play in cross-border transactions.
Lady Nadine Cobham, the daughter-in-law of the firm’s founder, Sir Alan, has called for the government to block the deal.
Among her concerns is whether a US private-equity firm should have access to Cobham’s “sensitive technology … let alone one such as Advent with limited experience in the defence sector and the security culture and procedures necessary to manage such assets,” according to the British publication The Telegraph.
In November, though, the British government indicated that it was likely to allow the deal, according to Reuters.