Global Markets Analyst at Finimize | Ex-Equity Analyst | Featured: CNBC, CityAM, Asharq (Bloomberg), Barron's | Posts about investing, finance, markets & more 📈
Private Equity Firms Are Holding A Record Number Of Unsold Companies 🏷️ PE firms are like house flippers, but for businesses. They pool money, borrow some more, buy a company, and then spruce it up – all in the hope of selling it for a profit down the line. But lately that whole “selling it” bit hasn’t been that easy due to a big slowdown in dealmaking activity (spurred by higher borrowing costs). Case in point: PE groups globally are currently sitting on a record 28,000 unsold companies worth more than $3 trillion, according to a new report by Bain & Company. More than 40% of the firms waiting to be sold are at least four years old – a sign that their owners are overdue in selling them considering that PE groups typically hold portfolio companies for three to five years. This backlog is starting to cause big problems for the industry, as it hampers PE firms' ability to return money to investors looking to exit. Against this unfavorable backdrop, PE firms are using alternative money-raising tactics to return cash to their investors, including borrowing against the value of the assets in their portfolios. Problem is, those assets are companies that the PE firms acquired using boatloads of debt. Put differently, PE firms are returning cash to investors by adding yet ANOTHER layer of debt to their portfolios at a time when interest rates are really high. If it sounds risky, it is, and investors are increasingly voicing their concerns over the practice, arguing that returns are being tilted too far toward financial engineering rather than investee companies’ underlying performances. There is some good news, however, with growing signs that the traditional initial public offering (IPO) exit route is making a comeback in Europe, with two PE-owned companies recently announcing plans to list on the stock market. In fact, companies have raised $3.2 billion in European IPOs since January – more than double the amount over the same period last year, and a performance that puts the market on track for its best first quarter since 2021. As PE firms navigate through a sea of challenges, this recent revival in IPOs could offer them a glimmer of hope. Now let’s see if they can use the rebound strategically… Via Finimize. #markets #finance #investing #invest #investment #privateequity #ipos #lbos
Debt on debt on debt - welcome to the beautiful world of shadow banks Reda Farran, CFA :)
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9mogreat analysis Reda Farran, CFA do you think the SPAC craze helped on the sale side (when it was still a thing of course)?