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Private equity industry asks how long the boom will last

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The Charging Bull or Wall Street Bull is pictured in the Manhattan borough of New York City, New York, U.S., January 16, 2019. REUTERS/Carlo Allegri/File Photo

BERLIN, Nov 9 (Reuters) – Private equity dealmakers are descending on Berlin for their annual get-together, with their industry thriving and many of them wondering how long the good times will last.

Armed with billions of dollars, buyout firms have already taken advantage of what has been a record year for mergers and acquisitions (M&A), selling some of their assets for top dollar.

Private equity-backed M&A deals more than doubled to a record $818.4 billion in the first nine months of this year, up from $315.2 billion last year, according to Refinitiv.

The S&P private equity index (.SPLPEQTY), meanwhile, is up 43% so far this year, compared with a 25% gain in the benchmark S&P 500 (.SPX).

Shares of the biggest private equity firms, including Blackstone Group Inc (BX.N), KKR & Co Inc (KKR.N), Apollo Global Management Inc (APO.N), Carlyle Group Inc (CG.O), and Ares Management (ARES.N), have surged as the U.S. economy rebounded with the easing of coronavirus restrictions.

The private equity industry’s median internal rate of return was 33% as of March 2021, the highest on record, according to data provider Pitchbook.

Despite the looming threat of inflation, dealmakers expect the current pace of activity to continue, with hundreds of millions of dollars of management fees at stake for top industry executives.

“We are certainly seeing some inflationary pressures combined with somewhat of an easing of the pandemic globally,” Brian Bernasek, co-head of U.S. buyout and growth at Carlyle, told Reuters. “We expect to see a continued robust environment, but with perhaps a bit less steam in the system.”

At the annual SuperReturn International conference, attention is also expected to focus on the labour shortage facing numerous U.S. businesses – a worrying sign for many private equity-owned companies.

“People have been paid to stay home,” said Michael Psaros, managing partner at KPS Capital, who says orders at his industrial companies are going unfulfilled despite surging demand. “The impact is the opportunity cost or forgone profit.”

While larger buyout deals have been few and far between this year, some private equity firms have banded together to acquire companies for huge sums, raising expectations that such so-called club deals could happen more often.

Most buyout firms typically assume sole control of companies and rarely team up.

But in June, Blackstone, Carlyle and Hellman & Friedman together agreed to buy medical supply and equipment company Medline Industries Inc for $34 billion, including debt.

On Monday, Advent International, Permira Advisers LLC, and Crosspoint Capital Partners agreed to jointly take the cyber security company private in a $14 billion deal. read more

Dealmakers say more such deals could occur, given the availability of capital, though some point to the industry’s high levels of debt.

“The private equity market is generally more levered than the public market on a relative basis but with better matched return and duration,” said Scott Graves, co-head of private equity at Ares Management.

(This story refiles to add ‘growth’ in job title in eight paragraph.)

Reporting by Chibuike Oguh in Berlin
Writing by Anirban Sen in Bangalore
Editing by Mark Potter

Our Standards: The Thomson Reuters Trust Principles.

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