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Private Equity Briefcase

By Kelly Holman, IDD Magazine

September 28, 2009

Night Of The PE Dead?

"The model is broken. Private equity is dead," one private equity executive who wishes to remain anonymous tells the London Daily Telegraph newspaper.

The highly leveraged buyout may be broken, but the industry dead?

If it is then buyout firm executives must surely be zombies -- the intelligent, deal-making kind. A quick scan of the headlines across the pond and in the U.S. indicates that new deals are being struck and while the LBO industry isn't exactly vibrant, it isn't in its final throes.

On a side note, the U.K. buyout group August Equity has tapped into an industry that has yet to see slackening demand -- the mortuary business. Last week, the London buyout shop invested £23 million in Funeral Services Partnership Ltd.

But, let's get back to the issue at hand. Perhaps a more compelling example of the health of the alternative asset class can be found in a strategic deal announced on Monday.

That's when Morningstar of Chicago announced its acquisition of a minority stake in Seattle private equity data provider PitchBook Data. As Liz Kirscher, president of the data services unit of Morningstar, put it in the deal's press release: "Private equity investments represent a significant asset pool and have been attracting increasing investor interest because of their low correlation with the stock market."

Moreover, a number of buyout groups like TPG, and firms in the U.K., are counting on harvesting their investments through initial public offerings. A myriad of others have pursued profit-taking through successful secondary offerings.

It would be silly to suggest that executing LBOs and raising capital for new funds is an easy task. But, if the spate of harvest activity offers any indication, the buyout business may not be on such bad footing after all, even if it is facing declining returns and a dearth of LBO financing.

Let's face it, while the adrenalin in the private equity business comes from executing an acquisition or making a new investment, the end game is really about realizing it. It may not be as sexy as the chase to close a deal, but returning capital to investors is ultimately what it's all about.

For the near term, at least, a lot of portfolio companies await harvest. So, let's hear it for the night of the private equity dead, which just may be on the verge of a new dawn given the take-private deal activity taking place.

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Kelly Holman

Kelly Holman is the assistant managing editor at Investment Dealers' Digest, where he writes about private equity and leveraged finance. Prior to joining IDD, he reported on leveraged buyout transactions, private equity fundraising activity, corporate auctions, the middle market and credit markets as a senior writer for The Deal. Before joining The Deal in 2000, Holman was a reporter for PRWeek magazine, where he reported on financial services PR and investor relation activities, as well as international PR developments. He also assisted with Haymarket Media Group's US launch of the public relations trade magazine. Previous to PRWeek, Holman wrote about private equity for Private Equity Week and Buyouts and served as a contributor to IDD in the late 1990's. A Colorado transplant, Holman has called New York home for more than a decade. He received his B.A. in Mass Communications from the University of Colorado at Denver..

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