Unlock the Editor’s Digest for free
FT editor Roula Khalaf selects her favourite stories in this weekly newsletter.
Even by Blackstone’s standards, it was a huge windfall. The private capital group recently sold the last of its massive investment in Refinitiv, the financial data company it acquired from Thomson Reuters.
The investment is considered one of the more successful deals in Blackstone’s history, rivaling the profits of hotel group Hilton Worldwide. The company acquired Refinitiv from Thomson Reuters in 2018, buying a 55 percent stake in the company and leaving 45 percent ownership with the Canadian media company.
Blackstone’s profits totaled nearly $12 billion and the company more than tripled its equity investments, according to people briefed on the deal. Thomson Reuters has also received billions in cash, reviving its once languishing share price.
While notable, the windfall has become an outlier on Wall Street for a much more mundane reason. Blackstone has completely exited one of the largest buyouts since the financial crisis in less than six years, a timeframe that was once routine in the $4 trillion-plus private equity industry but is now nearly unparalleled in its speed.
Blackstone acquired Refinitiv in the fall of 2018 at a $20 billion valuation and then laid out a well-orchestrated path to exit the business. First, it spun off Refinitiv’s valuable electronic trading business, Tradeweb. Then, in 2021, it sold the business to the London Stock Exchange. This year, Blackstone quietly sold the last of its LSEG shares.
This timely exit is an exception to the record wave of megadeals in the private equity sector that occurred in a post-financial crisis era, when financing costs were low and corporate takeover valuations soared to new heights.
Rising interest rates in recent years have caused valuations to fall and IPO activity to grind to a halt. Faced with rising borrowing costs, corporate and private equity-backed buyers have retreated from aggressive acquisitions. In turn, private equity firms sitting on big bets have struggled to find a way out and are extending their investment horizons to almost unprecedented lengths.
Today, the buyout industry faces the challenge of selling off a record stock of more than $3 trillion in legacy investments. Last year, the private equity industry saw the shortfall in cash distributions to investors versus how much committed money was called for investments reach a peak not seen since the 2008 financial crisis, according to Bain & Company. The consultancy further noted that the share of long-term companies in buyout portfolios was increasing rapidly and had not been this high since the post-crisis years.
A major cause of the indigestion is large-scale takeovers that took place when debt was cheap, but are now on a dangerous path to exit. Industry executives are reluctant to take companies public, fearing their deals will languish on the stock markets and lead to embarrassing writedowns. They are being deterred by a whole host of big companies, such as shoe brand Dr. Martens and dating app Bumble, which have taken buyout companies to the stock exchange in recent years, but have seen their shares plummet. There is even a trend of PE groups delisting major portfolio companies that have floundered on the public markets, including Silver Lake-owned Endeavor and Permira-backed laboratory services company Synlab.
Another option, at least temporarily, is to remain private. Last week, Permira withdrew the listing of retailer Golden Goose at the last minute, fearing a lukewarm market reception.
Many dealmakers are frustrated by what they see as a lack of fundamental stock pickers in the public equity markets. Others blame the rise of quantitatively oriented investors. An Apollo Global executive recently said at an industry conference that quantitative hedge funds are reluctant to pursue PE-backed listings due to fears that owners will quickly sell shares, putting pressure on valuations.
The lack of exit options has forced some private equity executives to reconsider reckless megadeals altogether. A buyout executive recently admitted they would shift their focus to smaller deals with a wider range of potential buyers at exit. Another said they would apply an “illiquidity discount” if they pursued a major deal.
Questions about the viability of the mega private equity buyout will only intensify in the coming years absent a change in the environment and a drop in interest rates. Between 2020 and mid-2022, private equity groups made a wave of bold acquisitions, including medical health records provider Athenahealth, TV ratings group Nielsen, cybersecurity pioneer McAfee, medical supplies company Medline and ThyssenKrupp’s elevator business. These deals are quickly becoming stale, and the clock is ticking for many private equity groups.
antoine.gara@ft.com