After a fairly slack period for big deals, private equity firms look to be targeting an attractive new segment – other private equity firms. According to PitchBook’s roundup of US public private equity and general partner deals, the number of transactions were up 84% this year as of end-July, with up to 150 likely to be completed by year-end, outpacing the record 114 in 2021. Deal value, meanwhile, was already at around US$21 billion and may peak at about $28 billion at the end of the year, according to PitchBook.
Admittedly, more than half of the value so far in 2024 is accounted for by just one mega deal – BlackRock’s acquisition of Global Infrastructure Partners for $12.5 billion, announced in January. It is the largest alternative mergers and acquisitions deal ever thus far, and is seen as very highly priced but allowing BlackRock to diversify into areas it had not previously excelled in.
It is by no means the only multi-billion deal in this segment. The least valuable one in PitchBook’s table of top ten alternative deals by value as of end-July was Boyd Watterson Asset Management’s acquisition of Amber Infrastructure Group for $1.8 billion. The rest are well north of that figure.
Kyle Walters, a PitchBook private equity analyst, observed that momentum in this area comes as general partners look to expand into new asset classes to help their firms continue to grow assets under management and be more of a one-stop-shop for limited partners. “These firms can offer these LPs access to more asset classes and save them time by not having to do due diligence on other managers, and in return, these LPs commit more capital to these sponsors and help the sponsors grow AUM,” he says.
However, one might query the diversification for investors. Clearly there is some benefit in broadening the footprint of a firm, but it hardly expands them beyond exposure to the financial sector as a whole.
The argument that such deals save LPs time and effort on due diligence is questionable. LPs ought to be nuancing their due diligence to take account of any sub-asset class they are deploying into, regardless of the umbrella it sits under. And the whole point of these acquisitions is that they offer new investment approaches that the acquirer didn’t have before.
That said, of course you can see the value for the GPs. New capabilities, higher assets, and deal momentum in a challenging market. What’s not to like?
