Introduction to Private Equity: Venture, Growth, LBO and Turn-Around Capital, 2nd Edition

6

Private Equity Evolution

Trends or Buzzes?

The growing interaction between listed markets and the private equity sector has raised many questions, chiefly: is private equity going mainstream? (See section 6.1). As it evolves slowly into an institutionalised area for investments, this capital inflow may change the way private equity creates value (see section 6.2). This could also raise the prospect of more bubbles (see section 6.3).

6.1 IS PRIVATE EQUITY GOING MAINSTREAM?

Having made multi-billion dollar deals in 2006 (Equity Office Properties at USD 36 billion, HCA at USD 33 billion, Kinder Morgan at USD 27 billion, Harrah’s at USD 21.2 billion, Freescale at USD 17 billion), LBO funds were exhibiting an increased financial strength. According to IDD,1 private equity firms had USD 770 billion to invest globally. They executed 15% to 30 % of the overall M&A transactions in 2006 and 2007, but only 5% in 2009. Private equity groups, namely LBO funds, are now competing with corporate strategic buyers for acquisitions, and are even targeting listed groups as potential acquisitions. Stock exchanges provide not only an exit path for private equity deals, but also a source of deal flow. The French Group Vivendi was approached by KKR for a EUR 40 billion take-over in October 2006, which was subsequently declined. Very few listed companies are now out of the reach of private equity firms. Even Microsoft was named by the Financial Times as being a possible target for a deal.2

A growing ...