The Smart Money Dumps “Everything That’s Not Nailed Down”
Wolf Richter
Testosteronepit.com
TUESDAY, JUNE 25, 2013
April 30, 2013, was the day when Private Equity firms – the smart money, and among the greatest beneficiaries of the Fed’s money-printing and bond-buying binge – announced their intentions to the rest of the world. The occasion was the big PE shindig in Los Angeles, the Milken Institute conference. The heavy hitters were there, and they let fly some pungent words during a panel discussion.
“We think it’s a fabulous environment to be selling,” said Leon Black, CEO of PE giant Apollo Global Management. With stock markets having more than doubled since their 2009 lows, average prices for leveraged buyouts have jumped to nine times earnings, he said. His firm had already dumped about $13 billion in assets over the last 15 months. “We’re selling everything that’s not nailed down,” he said.
He wasn’t kidding. Just how desperate are they to dump their assets while they still can? They’re now trying to unload EP Energy, an oil and gas company that an Apollo-led consortium had acquired in May last year for $7.5 billion. Highly unusual: PE firms normally exit their portfolio companies after three to seven years. And who might pay top dollar at the peak of the market? Retail investors. So Apollo is scrambling to line up investment banks to push EP Energy out the door this year via a rush-job IPO, “three people familiar with the matter” told Reuters on Monday.
Apollo already dumped eight portfolio companies through IPOs this year alone. A ninth, Athlon Energy, filed for an IPO earlier this month. Also this month, EP Energy sold off three of its entities, raising $1.3 billion. Other PE firms are selling as well, including Warburg Pincus, which is hoping to unload Antero Resources in a $1 billion IPO. Sell, sell, sell.
And buying by PE firms? Not much so far this year. Outside of two big deals, Dell and ketchup maker Heinz, there were only five deals above $1 billion for a combined $16 billion. A dearth of deals just when capital, the crux of the PE business, has been plentiful and cheap – with yields, before the corporate bond market began to skid in early May, at all-time lows. In addition, PE firms have been sitting on massive piles of dry powder… $500 billion. They’re eminently able to buy, but they’re not willing. Sell, sell, sell.
The Rest…HERE
