Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Economy

Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Currencies, Equities

Scary movie sequel beckons for eurozone markets

Just as horror movies can spook fright nerds more than they expect, so political risk is sparking heightened levels of anxiety among seasoned investors. Investors caught out by Brexit and Donald Trump are making better preparations for political risk in Europe, plotting a route to the exit door if the unfolding story of French, German […]

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Banks

Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Banks, Financial

Banking app targets millennials who want help budgeting

Graduate debt, rent and high living costs have made it hard for millennials to save for a house, a pension or even a holiday. For Ollie Purdue, a 23-year-old law graduate, this was reason enough to launch Loot, a banking app targeted at tech-dependent 20-somethings who want help to manage their money and avoid falling […]

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Categorized | Financial

Buyout managers face investor competition


Posted on September 30, 2014

RAC van

These days, private equity fund managers are not just jostling with other buyout houses, cash-rich multinationals and debt-savvy entrepreneurs such as Warren Buffett and Patrick Drahi in their quest for acquisitions – they are also competing with their own investors.

Last week, Singaporean sovereign wealth fund GIC, one of the world’s biggest and oldest backers of private equity funds, agreed to buy nearly half of RAC from its owner, Carlyle, in a deal valuing the company at more than £2bn including debt. The bid, which derailed plans to list the UK roadside recovery specialist, followed approaches from Apax, CVC, Cinven, Blackstone and Charterhouse, people with knowledge of the situation said.

    The move highlights how years of record low interest rates are pushing some of the largest pension plans and sovereign wealth funds to invest their cash directly – and save the expensive fees charged by buyout fund managers – to boost returns. The intensifying trend is yet another illustration of the competitive squeeze affecting private equity houses’ ability to put money to work.

    “Some pension plans, like the Canadians, and some of the largest sovereign wealth funds are becoming serious competition in the buyout market,” Fotis Hasiotis, head of European financial sponsors at Lazard says. “Like GIC, we may see more limited partners become more proactive with fund managers they back, by using their knowledge of the portfolio companies to buy stakes directly from them.”

    In the future, sovereign wealth funds and other long-term investors could even “team up with some of the larger public institutional investors that are able to hold illiquid assets,” says Alasdair Warren, head of private equity coverage in Europe at Goldman Sachs. The RAC “is an example where you have strong, cash generative businesses that some of those investors now want to own directly”.

    This additional capital will not help buyout groups spend $464bn of unspent investor commitments they have amassed in their funds, an amount that has swollen 16 per cent compared with 2013 following fresh fundraising, according to Preqin. “Dry powder” is nearing the $481.5bn peak recorded in 2008, when the collapse of Lehman Brothers roiled markets and brought dealmaking to an abrupt halt.

    Meanwhile, the average prices paid for assets have crept to levels higher than those seen before the financial crisis, but the volumes of deals have not recovered to the same extent, despite supportive equity and credit markets. Private equity transactions in the US, the largest single market for leveraged buyouts, have shrunk 22 per cent to $77bn this year, compared with 2013 when Silver Lake co-led the $25bn acquisition of Dell, according to Thomson Reuters. Globally, volumes were up 14 per cent to $195.6bn, equalling levels recorded about a decade ago.

    There is hope, however, that as multinational companies accelerate the pace of mergers and acquisitions, there will be leftovers for private equity groups in the form of non-core units. Lafarge and Holcim are planning to sell as much as $5bn worth of cement factories and GlaxoSmithKline is looking to sell a $5bn portfolio of mature drugs.

    But until these complex carveouts materialise, “it continues to be more of a sellers’ market,” Mr Warren notes.