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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Economy

Eurozone inflation climbs to highest since April 2014

A welcome dose of good news before next week’s big European Central Bank meeting. Year on year inflation in the eurozone has climbed to its best rate since April 2014 this month, accelerating to 0.6 per cent from 0.5 per cent on the back of the rising cost of services and the fading effect of […]

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Financial

Wealth manager Brewin Dolphin hit by restructuring costs

Profits at wealth manager Brewin Dolphin were hit by restructuring costs as the company continued to shift its focus towards portfolio management. The FTSE 250 company reported pre-tax profits of £50.1m in the year to September 30, down 17.9 per cent from £61m the previous year. Finance director Andrew Westenberger said its 2015 figure was […]

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Financial

Travis Perkins and Polymetal to lose out in FTSE 100 reshuffle

Builders’ merchant Travis Perkins and mining company Polymetal face relegation from the FTSE 100 after their recent performances were hit by political events. The share price of Travis Perkins has dropped 29 per cent since the UK voted to leave the EU in June, as economic uncertainty has sparked concerns among some investors about the […]

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Banks

RBS share drop accelerates on stress test flop

Stressed. Shares in Royal Bank of Scotland have accelerated their losses this morning, falling over 4.5 per cent after the state-backed lender came in bottom of the heap in the Bank of England’s latest stress tests. RBS failed the toughest ever stress tests carried out by the BoE, with results this morning showing the lender’s […]

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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.