Private equity industry asks how long the boom will last

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BERLIN, Nov 9 (Businesshala) – As private equity dealmakers descend on Berlin for their annual meetup, their industries are thriving and many of them wonder how long the good times will last.

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With billions of dollars in hand, buyout firms have already reaped record years for mergers and acquisitions (M&A), selling some of their assets for top dollar.

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According to Refinitiv, private equity-backed M&A deals more than doubled to $818.4 billion in the first nine months of this year, up from last year’s $315.2 billion.

The S&P Private Equity Index, meanwhile, is up 43% so far this year, while the benchmark S&P 500 is up 25%.

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Shares of the biggest private equity firms including Blackstone Group Inc, KKR & Co Inc, Apollo Global Management Inc, Carlyle Group Inc and Ares Management have jumped as the US economy returns with the easing of coronavirus restrictions.

According to data provider Pitchbook, the average internal return rate of the private equity industry stood at 33% as of March 2021, the highest on record.

Despite the rising threat of inflation, dealmakers expect the current pace of activity to continue, with hundreds of millions of dollars in management fees at stake for top industry executives.

“We’re certainly seeing some inflationary pressures globally with the pandemic easing somewhat,” Brian Bernseck, co-head of the US buyout at Carlyle, told Businesshala. “We expect to see a continued strong atmosphere, but with perhaps a little less steam in the system.”

At the annual Superreturn International conference, the focus is also expected to focus on the labor shortages facing many US businesses — a worrying sign for many private equity-owned companies.

“People have been paid to stay home,” said Michael Saros, managing partner at KPS Capital, who says orders from their industrial companies are not being fulfilled despite increasing demand. “

While big buy deals have been few and far between this year, some private equity firms have banded together to acquire companies for larger sums, raising hopes that such so-called club deals may happen more frequently. .

Most buyout firms usually assume sole control of the companies and rarely form teams.

But in June, Blackstone, Carlyle and Hellman & Friedman together agreed to buy medical supplies and equipment company Medline Industries Inc. for $34 billion, including debt.

On Monday, Advent International, Permira Advisors LLC, and Crosspoint Capital Partners agreed to jointly take the cybersecurity company private in a $14 billion deal.

Dealmakers say more such deals may happen depending on the availability of capital, though some points point to the industry’s high level of debt.

“The private equity market is generally more leveraged than the public market on a relative basis, but with better matching returns and duration,” said Scott Graves, co-head of private equity at Ares Management. (Reporting by Chibuike Oguh in Berlin, Writing by Anirban Sen in Bangalore, Editing by Mark Potter)

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