Private Equity is a big force in the investment scene. There are nearly 4,000 of these firms in the US, and they’ve invested
in about 13,000 companies. They’re considered the “smart money” because
of their acumen, insider knowledge, and ability to time the markets,
which they have to in order to profitably exit their their long-term
illiquid investments.
OK, even the smartest among them got caught with their pants down
last year when the oil price crashed. And those that invested in natural
gas drillers have been regretting this move for years, after the
natural gas price crashed in 2009 without ever really recovering since.
Fracking, which boomed thanks to a near endless flood of money from Wall
Street, including PE firms, has dished out costly lessons in return.
So, even the ultimate “smart money” can get carried away by its own
hype. But recently, they’ve been doing something else: they’ve been
dumping existing investments at record pace.
In the second quarter this year, exit volume by US-based PE firms “exploded” to $125 billion, according to a report
by the Private Equity Growth Capital Council. This includes sales to
the public via IPOs and to “strategic and financial investors,” such as
corporations.
It brought the first-half exit volume to $195 billion, up 46% from
the same period in 2014 and up a stunning 275% from the same period in
2013. Something is going on, and they want out.
And they’re not going to slow down anytime soon, “as corporate acquirers clamor for deals,” according to The Wall Street Journal:
On Monday, McGraw Hill Financial agreed to buy SNL Financial LC, the data provider backed by New Mountain Capital LLC, for $2.2 billion. That came on the heels of a $2.35 billion deal launched by WPX Energy Inc. for First Reserve-backed RKI Exploration & Production LLC.
They figured out, in an environment where nearly all assets are overpriced, it’s a great time to sell.
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wolfstreet.com / Wolf Richter/ August 2, 2015
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