Last week, The Blackstone Group LP (BX) announced an agreement to divest its entire stake in Alliant Insurance Services, Inc – a specialty insurance brokerage firm – to Kohlberg Kravis Roberts & Co. (KKR) – a private equity firm. In 2007, Blackstone acquired Alliant Insurance from New York-based Lindsay Goldberg & Co. LLC for an estimated $1.1 billion.
Either of the parties has not disclosed the terms of the deal, which is expected to culminate by the end of this year. Further, upon acquisition, it is assumed that the management team and employees of Alliant, who own about 45% of the company, will rollover a significant portion of their investment to Kohlberg Kravis. In addition, Alliant is seeking a $680 million term loan to finance the purchase, as per a Bloomberg report.
This year has witnessed a very strong trend of private asset companies selling assets to each other in deals popularly known as the secondary buyouts. However, Kohlberg Kravis’ buyout of Alliant from Blackstone marks a somewhat rare buyout in nature.
According to Dealogic, secondary deals worth nearly $28 billion have been announced so far in this year in the U.S itself. The rise in these types of deals is attributed to sellers willing to exit the deals made in the boom era and buyers looking to put available cash to work. In addition, expectations of higher capital gains taxes in the upcoming year are fueling the desire to sell.
Earlier this week, Goldman Sachs Capital Partners VI, a private equity fund of The Goldman Sachs Group Inc. (GS), agreed to divest USI Insurance Services LLC to Canadian private equity firm - Onex Corporation (OCX.TO) for $2.3 billion. The deal is anticipated to be completed by the end of this year.
Further, in August this year, The Carlyle Group LP (CG) announced a $3.3 billion deal to acquire controlling stake in Getty Images Inc. from Hellman & Friedman LLC for $2.4 billion.
It is a known fact that private equity firms do not hold on to companies for long. These firms generate profit from the investment within a certain period and return money to investors by liquidating the investment. Blackstone’s divestment of its stake in Alliant reflects this very strategy. .
Currently, Blackstone retains a Zacks #2 Rank, which translates into short-term Buy rating. However, considering fundamentals, we maintain a long-tern Neutral recommendation on the shares.
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