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Quick-Fire Dealmakers Are Fueling a $129 Billion Buyout Boom

Jan-Henrik Förster
·5 min read

(Bloomberg) -- It took Ardian SAS just two days in February to buy German laboratories company GBA Group.

That’s fast work even in a year when some of the biggest auctions, including the multibillion-dollar sales of software firm Unit4 NV and laboratories group Cerba HealthCare, have been sealed in double-quick time, according to half a dozen buyout executives and advisers.

In a fiercely competitive market for assets, private equity firms are learning that the key to winning is not just about price, it’s about how quickly they are prepared to spend. This is leading to an increase in those opting to approach targets early or pre-empt sales processes that typically comprise two to three bidding rounds.

“For buyers, it’s not just about the price any more with ever-rising valuations,” said Simona Maellare, global co-head of UBS Group AG’s alternative capital group. “It is becoming an execution game, and those who are faster win.”

With GBA, Ardian wasted no time in heading rivals off at the pass to take a majority stake alongside the group’s management and existing backer Quadriga Capital. A month later, German ophthalmic lens-maker Rodenstock skipped an auction process altogether to sell to Apax Partners.

Private equity firms spent $129 billion on company takeovers in the first quarter, the most for any corresponding period since before the 2008 financial crisis, according to data compiled by Bloomberg. Opportunities stemming from the Covid-19 pandemic, cheap credit and companies carving out units to clean up their balance sheets are all fueling dealmaking.

Sellers’ Market

At the same time, buyout houses are stocked with record amounts of uninvested capital, and yield-hungry investors are eager to see it put to work. This is all creating a sellers’ market, bankers say.

“There is a ton of money in the system across asset classes,” said Matthew Rosedale, head of financial sponsors for Europe, the Middle East and Africa at Jefferies Financial Group Inc. “The price for quality businesses is high regardless.”

In such an environment, opening the books to an eager private equity firm can help a company avoid the time and expense of an auction process without sacrificing the value that its competitive tension is designed to bring. On the flip side, it could make it harder to attract other buyers if those talks fall apart as questions may be raised about what was wrong with an asset.

Hot Spots

The technology and health-care sectors are offering particularly fertile ground for quick deals this year.

EQT AB pre-empted the competition and reached an agreement to buy Cerba for about 4.5 billion euros ($5.4 billion). Montagu Private Equity did the same with its roughly $700 million purchase of U.K. enterprise software developer ITRS Group Ltd., while Insight Partners completed a deal for one of its portfolio companies in just three weeks when it snapped up Dotmatics Ltd. for 500 million pounds ($687 million), Bloomberg News reported previously.

“How you secure deals? It is by delivering speed and certainty,” Rosedale said. “Pre-empting a deal is en vogue these days and it is not going away soon.”

The rush to transact has also seen investment firms outbid strategic buyers, which can normally afford to offer more due to potential synergies. Bain Capital and Cinven caught rivals flatfooted in February with a multibillion-dollar takeover of Lonza Group AG’s specialty ingredients unit, which had drawn interest from German chemicals group Lanxess AG and Malaysian oil producer Petronas, as well as buyout firms Partners Group Holding AG and Carlyle Group Inc.

Representatives for the private equity firms involved in the deals declined to comment or couldn’t immediately be reached for comment.

Stealth Mode

For fast-acting buyers, the secret to success often relies on keeping their intentions hidden from the wider market. Seeking debt funding for buyouts could alert rivals, as banks have an interest in triggering auctions, which offer more chances to win advisory and financing roles. One way around this is for private equity firms to first guarantee financing themselves and pull together a loan package later, even if that strategy is more risky.

“People are doing deals now where they take over the existing debt without refinancing it,” said Eamon Devlin, partner at MJ Hudson Group Plc. “People closing deals quickly will use equity and then get financing post transaction.”

Other hazards include getting used as leverage by seemingly enthusiastic sellers to tease out rival bidders. CVC Capital Partners thought a deal had been agreed with family-owned sandal maker Birkenstock, only to lose out to a surprise counterbid from L Catterton, the private equity backed by luxury retailer LVMH.

Bypassing formal sale processes can be a sign of a maturing market, with buyout firms studying ripening assets ahead of time so they can better convince their investment committees to move quickly. The fact that many companies, such as Rodenstock, have had multiple private equity owners means buyers often have better insights on targets than in previous decades.

Despite that perceived level of comfort, there’s always the chance an overly aggressive pursuit could lead to assigning a value or capital structure that leaves a business exposed in a downturn.

“The skill is knowing for which deals it is reasonable to run fast, and which deals require more diligence and caution,” said David Walker, a partner at law firm Latham & Watkins LLP. “In such a hot market, it is inevitable that some will get their fingers burnt.”

(Adds details of Lonza specialty ingredients deal in 13th paragraph)

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