Private Equity out of Dry Powder
Private equity is about investing in companies that are not listed on the stock market. There are way more private businesses out there to choose from than public ones, but there’s a reason curtains are drawn.
They don’t want sniffers. They don’t want snooping investors asking to buy slices of their family-ran outfits, especially when the numbers are less than six-figures. Private equity deals, when they happen, are big!
So big, in fact, that private equity investors typically come in the form of multi-billion-dollar Wall Street consortiums like Apollo and The Blackstone Group. When they buy, it’s usually for a majority share, and it typically involves borrowed money.
As the coronavirus pummels the business world, these leveraged giants are eyeing up some buyout targets. “Every day, it’s becoming a better day to buy,” says Blackstone’s CEO Steve Schwarzman. Things are getting cheaper and cheaper. Now’s the time to strike!
However, the market-wide cool off has completely frozen the markets for higher risk loans, many afraid they’ll never get their money back if a recession comes calling. Only more expensive sources of funding are available. Those take the excitement away from these deals, and it’s not like Blackstone and Apollo can sell existing portfolio picks either to raise money. Nobody is buying!
Of course, coinciding with all of this is growing dissatisfaction among stock market constituents. The constant short-term scrutiny from Wall Street is kicking up boardroom conversations at Walgreens, at most notably, Tesla, about potentially going private.
It’s unlikely that Elon Musk would (or could) give up his ballooned share price now, but there must still be many stocks trading cheaply whose managements would welcome out a private equity deal.
Given that such deals close at premiums to the market price, it could pay to be invested when the announcement is made. Food for thought!
