In the past, co-investing was a way for private equity firms to complete some of the largest deals in history without exceeding desired risk levels. As some of those mega-deals from the middle part of the decade have failed to produce anticipated returns, club deals have taken a beating. 2013 was one of the slowest years for club deals on record, PitchBook data show. Through Dec. 17 of this year, there have been only 260 completed syndicated deals worldwide. But thanks in part to 3G Capital and Berkshire Hathaway’s $23 billion purchase of Heinz, capital invested through club deals is up to its highest level since 2008 at $103 billion of disclosed capital.
KKR was the most active co-investor globally in 2013 | Source: PitchBook
Private equity co-investment has declined since a small rebound in 2010. | Source: PitchBook
The data used for this analysis looks only at global platform buyouts completed alongside other private equity firms or investment firms.
One of the most interesting trends in private equity PitchBook has seen this year has been the declining prevalence of platform buyouts as the predominant deal type. Investors have been rushing to less-risky bets and have put an increasing amount of capital to work in add-on and growth deals. In the past, investors sought to offload some of the risk associated with private equity by taking part in club deals, which nonetheless made up some of the most infamous deals of the pre-crisis era. Co-investing as a strategy has seen a precipitous decline since the boom years of 2006 and 2007, when club deals like Energy Future Holdings, First Data and Alltel ruled the day.
Limited partners have recently complained of collusion among private equity firms in the terms of club deals. Private equity firms are rumored to still be in the mood to syndicate deals, but not necessarily with other private equity firms. Some firms have recently been offering their LPs co-investment opportunities to invest capital alongside the fund in a given deal, such as Ares Management and Canada Pension Plan Investment Board’s $6 billion secondary buyout of Neiman Marcus in October. Syndicating this way still allows the firm to maintain control of the portfolio company, but also allows the fund to offload some of the risk while allowing LPs the opportunity for increased returns on top of the fund’s success.
Some firms believe that a large majority of the companies worth buying are already in private equity’s hands and fewer club deals will only serve to increase competition for those remaining companies, which should continue to drive valuations sky-high. Fewer club deals and an increasing focus on limited-partner co-investment should give LPs more exposure to both the upsides and downsides of private equity.
Be sure to return to the PitchBook Blog or read the PitchBook Newsletter in the coming days for additional 2013 in Review content.