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Even by Blackstone standards, it was a big win. The private equity group recently sold the last of its massive investment in Refinitiv, the financial data business it acquired from Thomson Reuters.
The investment is one of the most successful transactions in Blackstone’s history, rivaling profits from the Hilton Worldwide hotel group. Refinitiv was acquired from Thomson Reuters in 2018 by buying a 55 percent stake in the business and retaining 45 percent ownership of the Canadian media company.
Blackstone’s profits were close to $12 billion and it more than tripled its equity investment, according to people briefed on the deal. Thomson Reuters also received billions in cash, helping revive its once-tumbling stock price.
Although unexpected, it has turned into an outlier on Wall Street for a much more pedestrian reason. Blackstone completely exited one of the biggest buyouts since the financial crisis in less than six years, a time frame that was once routine in the $4 billion-plus private equity industry but is now nearly unmatched in its speed.
Blackstone acquired Refinitiv in the fall of 2018 for $20 billion and then laid out a well-organized exit path. First, it spun off the valuable e-commerce company Refinitiv Tradeweb. It then sold the company to the London Stock Exchange in 2021. This year, Blackstone quietly sold the last of its LSEG shares.
The early exit is an exception following a record wave of large private equity deals that occurred in the post-financial crisis era, when funding costs were low and takeover valuations soared to new heights.
Rising interest rates in recent years have caused valuations to fall and primary offerings to stall. Faced with rising financing costs, corporate and private equity buyers have backed away from aggressive takeovers. Big-bet private equity firms, in turn, are scrambling to find a way out, stretching their investment timelines to near-unprecedented lengths.
Today, the buyout industry faces the challenge of selling off a record inventory of more than $3 trillion in aging investments. Last year, the private equity sector saw a shortfall in its cash distributions to investors compared to how much tied-up money was being called for investment, according to Bain & Company, a high not seen since the 2008 financial crisis. The consultancy further noted that the share of long-standing companies in buyout portfolios has grown rapidly and has not been as high since the post-crisis years.
The main cause of the indigestion is the large acquisitions that took place when debt was cheap but now face a perilous path to exit. Industry leaders are reticent to take companies public, fearing their deals will languish on stock markets and trigger embarrassing write-offs. They are deterred by a number of big companies, such as shoe brand Dr Martens and dating app Bumble, which have been taken public by buyout firms in recent years, but their shares have been hammered. There’s even a trend for PE groups to offload a large portfolio of companies stuck in the public markets, including Silver Lake-owned Endeavor and Permira-backed lab services company Synlab.
Another option, at least temporarily, is to stay private. Last week, Permira pulled its listing from retailer Golden Goose at the last minute amid fears of a lukewarm market reception.
Many dealers are frustrated by what they see as a lack of fundamental stock pickers in the public equity markets. Others blame the rise of quantitative investors. An Apollo Global executive recently told an industry conference that quantitative hedge funds are resisting PE-backed listings because of concerns that owners will quickly sell shares, putting pressure on valuations.
The lack of exit options has forced some private equity managers to rethink mega-deals altogether. One buyout manager recently admitted that he will shift his focus to smaller deals that will have a wider range of potential buyers at the exit. Another said they would apply an “illiquidity discount” if they were aiming for a big deal.
Questions about the viability of private equity mega takeovers will grow in the coming years unless the environment changes and interest rates fall. Between 2020 and mid-2022, private equity groups made a wave of bold acquisitions, including health records provider Athenahealth, television group Nielsen, cybersecurity pioneer McAfee, Medline and elevator company ThyssenKrupp. These deals are aging fast and time is running out for many private equity groups.
antoine.gara@ft.com