Don’t count out private equity yet
Like any other cyclical industry, the prospects for private equity look ugly as we continue into a big downturn in leveraged buyouts. Pending deals are being called off left and right and new deals are few and far between. But just like Billy Ray Cyrus found his way back into America’s achy breaky heart, don’t be surprised if private equity doesn’t fade into the night.
A recent Forbes article dove into the current state of affairs in the private equity industry and concluded that amidst the turmoil is opportunity — albeit for the best and brightest in the field. As the public debt and equity markets continue to shake out, those who were swimming naked (as the Warren Buffet quote goes) are increasingly being outed. And the easy access to investor capital and debt during the buyout boom ensured that there is no shortage of swimmers donning their birthday suits right now.
However, for the major players in the industry — the Blackstones, Carlyles, and KKRs of the world — cyclical swings in the world of buyouts is nothing new. Far from scrambling, these firms are plotting the ways that they can now shift gears to profit from the current panic. One way they’ve done this is buying back the very debt that they used to buy companies during the boom.
Of course the suspected silver lining for the PE shops may be hard to swallow given the lousy current results. Blackstone, which made its IPO last year with much fanfare, reported a hefty loss for the first quarter. The Wall Street Journal noted that Blackstone’s CEO Steven Schwarzman was looking at a claw in the first quarter that wasn’t from one of his notorious stone crabs. And the Blackstone bears in The Motley Fool’s CAPS community have kept the stock stalled at two out of a possible five stars.
Many investors may be familiar with Blackstone largely because of its recent public offering. The firm, though, like Carlyle and KKR, has been with us and doing buyout deals for decades and — in this writer’s opinion at least — will be with us for decades more. While Blackstone may be the most obvious public market play on private equity, business development companies Apollo Investment and American Capital Strategies can give public market investors similar exposure.
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The author owns shares of Blackstone Group. The Motley Fool has a disclosure policy.
Posted on May 17th, 2008 by
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