Earlier this week, a group of senior professionals from well known private equity firms spoke before a student audience in London eager to learn about the asset class. “We don’t usually participate in auctions,” one of them declared.
As private equity clichés go, this one is an old classic. Surely it must have confused some of the MBA students in the room, especially those clutching financial newspapers and trade magazines filled with news of the big-ticket deal auctions concluding or nearing completion – and with private equity firms dominating proceedings.
Bridgepoint’s £955 million (€1.1 billion; $1.5 billion) sale of Pets at Home this week was the result of an auction process that began with nine bidders, dropped to four (TPG, Bain Capital, Apax Partners and Kohlberg Kravis Roberts), and ultimately saw KKR pay a hefty 11.3 EBITDA multiple based on the company’s future growth projections.
Another hotly contested auction, Montagu Private Equity’s sale of safety equipment maker Survitec, concluded this morning with a £280 million sale to Warburg Pincus. At various points last year, the Carlyle Group and then Permira had been the frontrunners in the long-running process.
Meanwhile, Providence Equity Partners and Teachers’ Private Capital are set to receive some record-setting bids for Germany’s largest cable TV operator, Kabel Deutschland, which, like Pets at Home had been, is simultaneously pursuing a potential public float. CVC Capital Partners and Carlyle are expected to offer around €5 billion for Kabel, which would reportedly make it the largest LBO in two years. Advent International, Apax and BC Partners have also been named as potential suitors that might bid independently or as part of a syndicate.
Make no mistake – the reality is, if an asset is deemed top quality, private equity firms will take a seat at the bargaining table. They may not like it, but they will be there. That’s particularly true at the moment, as one industry observer put it, because “there’s a rarity value: these houses have a lot of money to spend and there’s not much on the market”. Good assets will generate intense interest, whether they are part of an auction process or not.
Industry insiders say more European businesses will soon be sold this way. While an uptick in activity isn’t expected to push private equity deals to pre-crisis levels – keeping in mind today’s mega-deals have smaller price tags and lower leverage levels – it is a telling start to the year. Limited partners will be looking on with mixed emotions: those invested in acquiring funds will worry about prices being paid. Those in disposing partnerships will love the distributions – ask any LP in Bridgepoint Europe III.
And for anyone still learning about the ins and outs of the private equity business, the next buyout executive to tell you their fund doesn’t buy assets at auction is probably not far away. It’s your call as to how seriously you want to take them.
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