While retail investors poured a record $40 billion into stock mutual funds and ETFs in July, the shrewd operators of some of the biggest private equity companies are heading rapidly in the opposite direction, writes MoneyShow's Howard R. Gold.
Top private equity firms like The Blackstone Group L.P. (NYSE:BX) and Apollo Global Management LLC (NYSE:APO) are furiously cashing out investments they've held for years through a wave of initial public offerings of brand-name companies like Norwegian Cruise Line Holdings (Nasdaq:NCLH), SeaWorld Entertainment (NYSE:SEAS) and, coming soon, Neiman Marcus.
Those IPOs—and some lucrative sales—have made huge profits for these firms and their investors, sending earnings of private equity firms soaring.
They've also given a jolt to the overall IPO market which is having its best year since 2006 as venture capitalists add to the feeding frenzy by bringing new companies to market at a faster pace.
For private equity firms, this may simply be the natural unwinding of a lot of deals they did in 2006-2007 and which now have found their exit in a strong equity market. That's the way the business is supposed to work.
But it also could indicate stocks have moved into lofty territory, and shrewd private equity managers are simply getting out while the getting's good, fobbing off the risk on buy-side institutions and the investing public.
- Read Howard's analysis of
why there's too much complacency in the market on
If you think I'm exaggerating, listen to what top private equity executives themselves are saying.
Here's Blackstone president Tony James:
“With credit markets hot and equities strong, this is a better time for selling assets than for buying.”
And Leon Black, chairman and CEO of Apollo, even invoked the great Biblical language of Ecclesiastes.
“There is a time to reap and there's a time to sow,” he said. “We're selling everything that's not nailed down in our portfolio.”
And maybe a few things that are nailed down. According to Bloomberg BusinessWeek, Apollo took in $14 billion from the sale of assets from the first quarter of 2012 through this year's first quarter.
He's hardly alone. While the number of new buyouts has dropped dramatically, the pace of exits has accelerated: $68.6 billion in the second quarter, double the dollar volume of the first quarter, according to Mergermarket.com.
Here are some big-name private equity companies that have cashed out or plan to this year through sales or IPOs:
- In January, Norwegian Cruise Line, owned by Apollo and TPG Capital, went
public in an IPO whose $477 million net proceeds were used to pay off debt.
Apollo and TPG will sell millions more shares in a secondary offering
announced July 31.
- In March, Blackstone took New Jersey-based Pinnacle Foods
public in an IPO that raised $627 million. The maker of Birds Eye, Log Cabin,
Duncan Hines, and Aunt Jemima foods will use all the proceeds to pay off
- In May, Valeant Pharmaceuticals International (NYSE:VRX)
of Canada paid $8.7 billion for Bausch & Lomb, which had already filed for
an IPO. Private equity firm Warburg Pincus will make nearly three times its initial investment in the
NEXT: A Shamu of a Deal