KKR has been the most acquisitive private equity firm since March, wasting little time in scoring investment opportunities amid massive economic disruption caused by the pandemic.
The private equity giant moved quickly and struck 17 deals collectively worth more than $10 billion from March to July, according to S&P Global Market Intelligence data, which recorded announced and closed deals during the period.
From a $4.3 billion deal for the beauty unit of Coty, to record deals in Asia including a $1.5 billion investment into Indian telecom network Reliance Jio Platforms, KKR’s appetite to invest through the pandemic was all about “playing offense”, having learned its lesson after the global financial crisis that it needed to position itself better during periods of dislocation, its chief financial officer Robert Lewin said on the firm’s second-quarter 2020 earnings call. In addition, companies were “much more willing to sell during the pandemic because of the uncertainties around how long the impact will last and whether negotiations will lead to a sale,” Ming Lu, head of Asia-Pacific at KKR, told Private Equity International in June.
French investment firm Ardian was the second-most acquisitive firm in the last five months with a total of eight announced or completed deals, including Swissbit, a manufacturer of NAND flash storage, and security and insurance company Finaxy.
Blackstone’s investments during the period were mainly real estate-focused, having acquired logistics facilities in Japan and Sweden as well as industrial assets in the Greater London area, data show. Technology-oriented and consumer finance investment opportunities were also hot items for the firm, as well as deals in fast-growing Asian markets.
In July, Blackstone Growth invested $200 million in equity in Swedish sustainable food company Oatly, as demand for plant-based products increases due to the growing community of health- and environmentally-conscious consumers.
Carlyle’s acquisition spree plugged into the digital economy, with investments in translation software provider Memsource and procurement and supply chain software company Unison. While covid-19 has increased headwinds, including a material drop in M&A activity as well as difficulties in executing large transactions across the global private equity industry as a whole, the firm remains positive on its investment pipeline and has announced or signed an additional $1.3 billion of new PE transactions in the coming quarters, it said in its Q2 2020 earnings statement.
Meanwhile, the most active buyers by value of transactions, either purchased direct or through co-investments or affiliated business, include KKR, General Atlantic, Warburg Pincus Asia and EQT, according to total disclosed deal value tracked by S&P.
“These firms are large enough that no single transaction will define the firm, and therefore they can be more aggressive,” Richard Madden, chief executive of investment advisory firm DC advisory, told Private Equity International. These firms have been around a long time and have seen that the best vintage years for investment are frequently those where fewer people are investing, he added.
From a return standpoint, private equity firms that were more acquisitive during the 2009 recession delivered higher average internal rates of return and raised more capital from investors, according to a report from McKinsey & Co. Large GPs with value creation teams during the crisis years outpaced the others and achieved about 5 percentage points more in IRR (23 percent) than firms without portfolio-operating groups (18 percent), the report revealed.
Firms with ample dry powder and large, well-established teams are investing aggressively during crises, noted Raelan Lambert, global head of alternatives at consultancy Mercer’s global wealth business. She added that these mega-funds’ “workout and restructuring capabilities, sector and capital markets expertise, as well as some flexibility in their investment mandates” also make them well-positioned to deploy large amounts of capital as economies come out of the global pandemic.