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Even by the standards of Blackstone, it was a big windfall. The private capital group recently sold down the last of its massive investment in Refinitiv, the financial data business it acquired from Thomson Reuters.
The investment stands as one of the more successful deals in Blackstone’s history, rivalling its gains from hotel group Hilton Worldwide. It acquired Refinitiv in 2018 from Thomson Reuters by buying a 55 per cent stake in the business and leaving 45 per cent of the ownership with the Canadian media company.
Blackstone’s gains neared $12bn and it has more than tripled its equity investment, according to people briefed on the deal. Thomson Reuters has also received billions in cash, helping to revive its once languishing stock price.
Though eye-catching, the windfall has turned into an outlier on Wall Street for a far more pedestrian reason. Blackstone has fully exited one of the largest buyouts since the financial crisis in under six years, a timeframe that once was routine in the more than $4tn private equity industry, but is now almost unmatched in its speed.
Blackstone acquired Refinitiv in the autumn of 2018 at a $20bn valuation, then laid a well-orchestrated path to exit. First, it spun off Refinitiv’s valuable Tradeweb electronic trading business. Then, it sold the company to the London Stock Exchange in 2021. This year, Blackstone quietly sold the last of its LSEG shares.
The on-time exit is the exception after a record wave of private equity mega deals that occurred in a post-financial crisis era when financing costs were low and corporate takeover valuations soared to new heights.
Rising interest rates in recent years have caused valuations to drop and initial public offering activity grind to a halt. Facing rising financing costs, corporate and private equity-backed buyers have retrenched from aggressive takeovers. In turn, private equity firms sitting on large bets are struggling to find a way out and stretching out their investment timelines to almost unprecedented lengths.
Today, the buyout industry is faced with the challenge of selling down a record stockpile of more than $3tn in ageing investments. Last year, the private equity industry saw the deficit of its cash distributions to investors versus how much committed money that was called on for investments reach a high not seen since the 2008 financial crisis, according to Bain & Company. The consultancy furthermore noted that the proportion of long-held companies in buyout portfolios was quickly rising and hadn’t been this large since the years after the crisis.
A major cause of the indigestion are large-sized takeovers struck when debt was cheap, but that now face a perilous path to exit. Industry executives are reticent to take companies public, fearing their deals will languish on stock markets and cause embarrassing writedowns. They are scared off by a crop of sizeable companies such as footwear brand Dr Martens and dating app Bumble that buyout firms took public in recent years but have seen their shares pummelled. There is even a trend of PE groups delisting large portfolio companies stranded on public markets, including Silver Lake-owned Endeavor and Permira-backed laboratory services company Synlab.
Another option, at least temporarily, is staying private. Last week, Permira pulled its listing of retailer Golden Goose at the last minute due to fears of a tepid market reception.
Many dealmakers are frustrated by what they view as a dearth of fundamental stockpickers in public equity markets. Others blame the rise of quantitative-oriented investors. An Apollo Global executive recently said at an industry conference that quantitative hedge funds balk at PE-backed listings because of fears that owners quickly sell stock, pressuring valuations.
The lack of exit options has forced some private equity executives to reconsider swashbuckling megadeals altogether. One buyout executive recently conceded they would shift their focus to smaller deals possessing a broader array of potential buyers at exit. Another said that if they pursued a large deal, they would apply an “illiquidity discount”.
Questions about the viability of the mega private equity takeover will only increase in the coming years if there is not a change of environment and a fall in interest rates. Between 2020 and mid-2022, private equity groups struck a wave of bold takeovers including for medical health records provider Athenahealth, TV ratings group Nielsen, cyber-security pioneer McAfee, medical supplies company Medline and ThyssenKrupp’s lifts business. These deals quickly age and the clock is ticking for many private equity groups.