Get ready for a slew of private-equity deals in coming months, as buyout firms reportedly are sitting on as much as $500 billion of undeployed capital that they must use or lose.
Investors were sending money to the firms hand over fist during the boom financial markets of 2003-2007. But if private equity firms don’t put the capital to work within three to five years, they must return it to investors.
Some industry heavyweights, including the Carlyle Group, Kohlberg Kravis Roberts and TPG hold more than $10 billion a piece, according to research firm Preqin.
Some experts are concerned that in desperation to avoid returning investors’ money, private equity firms will chase after weak companies and overpay for their purchases.
“Tough competition for deals” already has driven transaction prices higher, Kelly DePonte, a partner at Probitas Partners, which helps private equity firms raise money, told the New York Times.
That’s likely to pull investor returns down to the low to mid-teens for the life of funds, Hugh MacArthur, head of global private equity at consulting firm Bain & Co., told the Times.
One sector receiving a lot of attention from private equity firms is healthcare, thanks to the steadiness of revenue in that sector.
"M&A interest in the health-care sector tends to be pretty constant because it's very defensive and non-discretionary," Dominic Hollamby, global head of healthcare at Rothschild, told Dow Jones.
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