There was a brief period of sober rationality during the current central bank-facilitated, market reflation phase, when Private Equity shops decided they had no desire to chase artificially inflated valuations, especially since their currency – cash – did not benefit in the same was a strategic acquirors did, whose own stock had increased alongside that of the target company. After all, who can forget Apollo’s Leon Black speaking at the 2013 Milken Conference when he said that “this is an almost biblical opportunity to reap gains and sell,” adding that his private equity firm has been a net seller for the 15 months, and that they “are selling everything that is not nailed down.”
In retrospect, he should have hung on. Of course, who could possibly known that nearly a decade into the greatest central-planning experiment in history, central banks would still be injecting trillions into the market to create the illusion of economic growth, stability and a wealth effect, hoping to kick the can in perpetuity.
So, several years later, and scared of missing the boat altogether after sitting out a big part of the bubble, PE firms – flush with cash – are rushing in. In some ways, the PE willingness to resume buying companies at virtually any price is understandable: with the financial system overflowing with cash, much of it has found its way into the PE industry, and according to a recent Prequin survey, as of 2016, private equity funds were sitting on nearly $800 billion in cash.
This post was published at Zero Hedge on Oct 4, 2017.
Follow on Twitter
Recent Comments