(January 10, 2013) – The soft deal flow for private equity as a whole last year allowed the Carlyle Group to dominate with 48 acquisitions totaling $26.87 billion.
The Washington, D.C.-based firm accounted for 10% of the industry’s total 2012 deal value, which came in at $254.6 billion, according to Preqin. Carlyle’s next closest competitor was New York-based Apollo Global Management, which invested half ($13.56 billion) the assets that Carlyle did.
“Why are we, Carlyle, pursuing all these deals when our competitors, both private equity and corporate, seem much less active?” William Conway, the public firm’s co-founder and co-CEO, asked rhetorically during a Q3 earnings call on November 8. “First, we have a larger corporate private equity business than many of our peers.” He pointed out Carlyle’s decades-long involvement in buyout and growth investing, which he said lets the firm “find investments, where others can’t. And our experience gives us the comfort to pursue investments where others won’t.” Secondly, Conway acknowledged, “the timing of some of these investments is coincidental. Examples of this are DuPont Performance Coating, Hamilton Sundstrand, and Philadelphia Energy Solutions, all of which we’ve been working on for over a year. Our business is lumpy by nature.”
Finally, Conway argued that Carlyle enjoys a financial edge over its competition. “The weighted average cost of our debt on the recent Getty Images investment was only 5.25%. The high-yield market has become a low-yield market.”
While Carlyle excelled in 2012, the year presented more of a challenge for funds not buoyed by size, longevity, and luck. Capital—or lack thereof—proved to be one damper on the aggregate the deal flow of buyouts and growth investments.
“Fundraising continued to be very challenging in 2012, but the year ended with a slight improvement on the level of fundraising seen in 2011,” said Preqin’s Senior Manager Helen Kenyon. “With a record number of funds on the road and with the time taken to raise funds increasing slightly, the market will remain very competitive during 2013. Yet investor appetite for the asset class has remained strong and with the majority of LPs satisfied with the performance of their portfolios, it is possible that we may see some further improvement in overall fundraising levels in the year ahead.”
Investors may have just been cautious amid all the political and economic uncertainty last year, but a barrage of bad press likely did not help the (usually very private) industry. The New York Attorney General launched a tax-dodging investigation on private equity giants including Apollo, Bain Capital, Kohlberg Kravis Roberts & Company (KKR), Sun Capital Partners, TPG Capital, and Silver Lake Partners.
The third-largest dealmaker of the year, the Blackstone Group, had pointed out to regulators prior to the suit that it did not engage in the tax practice in question, and thereby avoided investigation. A lawsuit unsealed in October, however, revealed that the firm was being sued by a public pension for allegedly colluding with competitors Bain and KKR. The case—now stretching into its sixth year—is still winding its way through a Boston court.
Despite the legal trouble, Blackstone closed 33 deals across a variety of industries in 2012, worth a total of $13 billion. Riverstone Holdings and Advent International followed Blackstone to round out the year top five dealmakers. Riverstone topped Advent by $100 million to come in at fourth, adding a total of $10.94 billion to 2012’s private equity investment tally.