By Steve Rosenbush
The private equity industry is growing at a stunning pace, transforming the structure and balance of power in global business. These firms purchase companies privately, without the use of shares that trade publicly on the stock market. Private equity firms have lots of cash and access to vast amounts of cheap debt. Their capital costs are lower than those of publicly held companies, which means they can pay higher prices and win more deals than other sorts of buyers. They can afford to pay CEOs top dollar, drawing managerial talent away from the public markets. Since they don’t have to worry about satisfying public investors with quarterly earnings reports, they can spend three or four years improving the companies they buy, eventually selling the assets at a big profit.
Private equity deal volume reached a record $737.4 billion in 2006, more than doubling the previous record of $352.3 billion set in 2005, according to market researcher Dealogic. There were $631 billion worth of buyouts in the first half of 2007, up 133% from the first half of 2006. Here’s a look at the world’s 15 largest private equity firms, based on total assets under management.
The rankings were compiled by Mark O’Hare, managing director of Private Equity Intelligence, a research group based in London.
Blackstone Group
Headquarters: New York
Assets under management:
$49.7 billionProfile: PE leader The Blackstone Group grabbed headlines in 2007 by launching an IPO of its management company, a move that raised $4 billion for the firm and hundreds of millions for its founders. Peter Peterson, the former chairman of Bell & Howell and Lehman Brothers, founded the firm in 1985 with Lehman Brothers mergers-and-acquisitions chief Stephen Schwarzman. The firm started with four people and $400,000 in assets. Today, Schwarzman alone has an estimated personal net worth of $3.5 billion. Blackstone earned a reputation for working with willing targets in the ’80s, when hostile takeovers were common. It also made a practice of putting a significant amount of its own capital at risk in each of its transactions.
Peterson, a former Commerce Secretary in the Nixon Administration, recently has been critical of the Republican Party’s move to the right.
In 2002, Blackstone hired Credit Suisse M&A and private chief Hamilton “Tony” James as president.
Notable deals: Blackstone focused attention on the new private equity era with its stunning initial public offering of Celanese. It took the chemical maker public in 2005, making a five-fold profit less than a year after acquiring the company. After years of focusing on commercial real estate and hotels, the company has expanded into tech buyouts, including the $17.6 billion purchase of Freescale Semiconductor in 2006. Its restructuring business advised Enron last year as well.
Latest play: Its current $20 billion buyout fund is the largest in the world. Blackstone is now in a record $38.8 billion-plus bidding war with Vornado Realty Trust for ownership of Sam Zell’s Equity Office Trust.
The Carlyle Group
Headquarters: Washington, D.C.
Assets under management:
$39.8 billionProfile: The Washington-based buyout firm, named for a hotel on the Upper East Side of New York, is run by former IBM chief Louis Gerstner Jr. and loaded with former government officials, including former Securities & Exchange Commission chairman Arthur Levitt, President Clinton’s former chief of staff Mack McLarty, and former Federal Communications Commission chairman Bill Kennard. Former President George H.W. Bush was at the firm, but he retired in 2003. Relatives of Osama bin Laden have been investors in the firm. But Carlyle ended those ties after September 11, even though the family members decried the attack.
Notable deals: The firm recently bought the Dex directory business from Qwest Communications, as well as local phone lines from Verizon Communications. It owns Casema, a Dutch cable company, and the doughnut shop chain, Dunkin’ Brands.
Latest play: Its current fund is $7.9 billion. The company led a $15 billion buyout of car rental agency Hertz several years ago. It went public again in late 2006, selling 28% of its shares to the public. The IPO hasn’t lived up to hopes, though. Carlyle also participated in 2006’s $11 billion buyout of Dutch media concern VNU, which owns the Nielsen media ratings service.
Goldman Sachs Private Equity Group
Headquarters: New York
Assets under management:
$39 billionProfile: Goldman’s new CEO, trader Lloyd Blankein, reflects the rising importance of alternative investments such as hedge funds and private equity at Goldman Sachs. Private equity has been a particularly important line of business for the investment bank. Revenue from private equity and related businesses rose 64% last year, to $1.4 billion. Revenue from the more traditional investment banking business rose 42%, to $1.3 billion.
Notable deals: In 2007, Goldman co-led the $27.9 billon buyout of wireless telecom company Alltel. In 2006, Goldman led the $21.6 billion takeover of energy giant Kinder Morgan. Its $8.5 billion fund is the sixth-largest buyout fund in the world.
Latest play: It joined Blackstone and others in the 2006 buyout of Biomet for $10.9 billion.
Credit Suisse Customized Fund Investment Group
Headquarters: New York
Assets under management:
$34.1 billionProfile: Credit Suisse acquired investment bank DLJ for $13 billion in 2000. Now DLJ Merchant Banking is the private equity arm of Credit Suisse, which is led by CEO Oswald Grubel. It closed a $2 billion fund last year.
Notable deals: DLJ Merchant Banking acquired Wastequip from CIVC partners for an undisclosed amount in 2005. It sold Wastequip to Odyssey Investment Partners in 2006 for an undisclosed amount.
Latest play: Last year, DLJ Merchant Banking acquired United Site Services, a portable restroom, storage, and fence company, from Odyssey Investment Partners for an undisclosed amount.
Kohlberg Kravis Roberts
Headquarters: New York
Assets under management:
$32.9 billionProfile: KKR defined the wheeling and dealing of the late ’80s with its record $31.4 billion takeover of RJR Nabisco. Founded in the 1970s by Bear Stearns alumni Jerome Kohlberg, Henry Kravis, and George Roberts, the firm was known for hostile takeovers. It used junk bonds raised by Drexel Burnham, led by Michael Milken.
Notable deals: KKR has been on a tear in 2007. It is following Blackstone down the path towards an initial public offering. It has also launched a flurry of deals, including the $27.7 billion buyout of First Data, the $20.5 billion acquisition of British retailer Alliance Boots and the $43.8 billion purchase of energy company TXU.
Latest play: It’s using its latest $14.8 billion fund to invest $700 million in Sun Microsystems. And KKR and Texas Pacific have recently weighed a $100 billion takeover of Home Depot, according to The New York Post. KKR is in the process of raising $16.6 billion for its next fund.
Texas Pacific Group
Headquarters: Fort Worth
Assets under management:
$31.2 billionProfile: Founded in 1992 by David Bonderman and others, the firm had a hit with its 1992 Burger King buyout. Bonderman, who has taken stakes in companies from Ducati motorcycles to retailer J. Crew, seems comfortable with popular culture. He hired The Rolling Stones to play at his 60th birthday party in 2002 in Las Vegas.
Notable deals: In 2007, TPG co-led the $27.9 billion buyout of wireless phone company Alltel and played a leading role in the $43.8 billion buyout of energy company TXU. TPG and Sony bought out MGM films in 2005. In 2006, TPG and Apollo won a $17 billion deal for Harrah’s Entertainment. It participated in 2006’s $17.6 billion buyout of Freescale Semiconductor and a $10.9 billion buyout of health-care company Biomet.
Latest play: Shareholders are suing to block TPG and partners from completing last year’s $12 billion deal for Spanish-language media giant Univision. The firm’s latest fund is $15 billion.
Permira
Headquarters: London
Assets under management:
$26.2 billionProfile: A collection of 18 separate funds, European private equity player Permira has invested in a wide range of companies, from HMV record stores to the Intelsat satellite operation. The firm, led by managing partner Damon Buffini, invests in chemicals, entertainment, media and technology, industrial products, and consumer goods.
Notable deals: Permira participated in the $17.6 billion Freescale buyout in 2006. Other investments in 2006 included personal protection company Aereo Technologies and TV production unit All3media.
Latest play: In December, Permira sold its Rodenstock eyeglass lens company to private equity player Bridgepoint for an undisclosed sum.
Warburg Pincus
Headquarters: New York
Assets under management:
$28.2 billionProfile: The company traces its roots to the Warburg banking family of Germany. When founder Eric Warburg retired in the mid-1960s, partner Lionel Pincus turned the firm into a private equity powerhouse.
Notable deals: The company’s investments span health care, technology, media and entertainment, consumer goods, real estate, industrial products, financial services, and energy. In 2006, Warburg and European private equity giant Cinven agreed to acquire Dutch cable TV company Essent for more than $2 billion.
Latest play: The firm participated in the management-led $8.3 billion buyout of professional services firm Aramark, which closed on Jan. 26, 2007.
HarbourVest Partners
Headquarters: Boston
Assets under management:
$22.2 billionProfile: HarbourVest was formed in 1997 to succeed Hancock Venture Capital. It’s owned entirely by management. The firm is run by a team of three senior managing directors, Edward Kane (at right), D. Brooks Zug, and Kevin Delbridge.
Notable deals: HarbourVest and private equity firm AlpInvest Partners said last year that they established a new fund, Paragon Partners Secondary, targeting opportunities in Germany.
Latest play: In January, the firm said it closed two new funds that invest in other private equity firms. Such vehicles are known as “funds of funds.” Its European fund raised more than its $2 billion, and its Asian fund raised nearly $500 million. Both exceeded their targets.
Apollo Management
Headquarters: New York
Assets under management:
$21.9 billionProfile: Drexel Burnham veteran Leon Black founded Apollo in 1990. Black studied history and philosophy at Dartmouth, where he graduated summa cum laude. Besides billions of dollars worth of real estate deals, Black has served on a number of boards, from the Museum of Modern Art and Lincoln Center to Sirius Satellite Radio.
Notable deals: Apollo and Texas Pacific are in the process of closing their $17.1 billion bid for Harrah’s.
Latest play: In December, 2006, Apollo bid $6.6 billion for Realogy Corp., which operates Coldwell Banker and other real estate franchises. Apollo’s latest fund has $10.1 billion.
Bain Capital Partners
Headquarters: Boston
Assets under management:
$21.1 billionProfile: Bain was founded in 1984 by Mitt Romney, who went on to become governor of Massachusetts. He followed in the path of his father who combined politics and business, by serving as governor of Michigan and the head of American Motors. Mitt Romney has indicated he may run for president as a Republican in 2008. Bain Capital was spun off from Bain Consulting. It got off to a fast start by investing in the office supply store Staples.
Notable deals: Last year, Bain was part of a group that took control of the semiconductor unit at Philips known as NXP. Last year, Bain teamed with Thomas Lee to offer $19 billion for Clear Channel Communications. That deal is under shareholder consideration.
Latest play: In 2006, Bain worked with KKR, Blackstone, and others in the $33 billion buyout of the HCA hospital company.
Oaktree Capital Management
Headquarters: Los Angeles
Assets under management:
$19.8 billionProfile: Oaktree was established in 1995 by a half-dozen veterans of Trust Company of the West. The firm is more than 90% owned by nine principals and 75 senior employees, including co-founder Howard Marks.
Notable deals: Oaktree won approval last year to buy a 33% stake in Cannery Casino Resorts in Las Vegas. The value of the deal wasn’t disclosed.
Latest play: The company is said to be considering a sale of its Pegasus aircraft leasing business, according to news reports. The deal could be worth $1.5 billion, according to Bloomberg News.
Apax Partners
Headquarters: London
Assets under management:
$19.2 billionProfile: Co-founder Alan Patricof got in early on Apple Computer and AOL. The firm now operates in Europe, the U.S., and Israel and invests in a wide range of businesses, from clothing designer Tommy Hilfiger to food company Grupo Panrico of Spain. In addition to his work as an investor, Patricof has been a major fund-raiser for the Democrats.
Notable deals: In 2006, Apax and others took control of TDC, the Danish tech and telecom company, for more than $11.5 billion.
Latest play: On Jan. 26, Apax said it sold its Molnlycke health-care group to Morgan Stanley and others for more than $2.5 billion.
CVC Capital Partners
Headquarters: London
Assets under management:
$18.1 billionProfile: CVC was launched in 1981. It’s run by managing partner Javier Jaime, a veteran of British private equity powerhouse 31. CVC operates throughout Europe and Asia. Its holdings include Formula One racing. The company says it likes to acquire companies that have market-leading positions, strong management, stable cash flows, and the opportunity to grow through acquisition.
Notable deals: CVC acquired Debenhams, the British department store chain, for about $3 billion in 2003 and sold off a chunk to the public last year in a $3 billion-plus IPO.
Latest play: Last September, CVC’s Asian fund paid $2.7 billion to buy DCA Group, a nursing home company in Australia.
Lehman Brothers Holdings
Headquarters: New York
Assets under management:
$17 billionProfile: The investment bank has a significant business of making private equity and venture investments, especially in the tech area. It also raises money for other private equity firms and makes investments in other private equity funds.
Notable deals: Lehman’s investments have included comScore Networks, a company that tracks the popularity of Web sites. It also invested in GameFly, on online gaming company.
Latest play: Last September, Lehman, led by CEO Richard Fuld, closed its latest private equity fund, which has $1.6 billion in cash.
Source : Business Week, dealogic
