While the mainstream media reminisces about the heady days of the private equity bubble with all the fondness of a first-date discussion of past romances, Goldman Sachs is betting big that the unwanted, unloved deals of the past few years are still valuable.
The Wall Street Journal reports that "A Goldman Sachs-led group has agreed to pay about $1.5 billion for a portfolio of existing private-equity investments divested as part of the $101 billion carve-up of Dutch bank ABN Amro by Banco Santander SA, Royal Bank of Scotland Group PLC and Fortis NV."
The $1.05 billion of the investment will be spread among 32 European companies taken private through LBOs, with another $450 million set aside for future deals. This — and the fact that Goldman has more money lined up for similar investments — signals that the smartest investment bank in the world is bullish on the prospects of many of the recent buyouts, and is taking advantage of sellers willing to unload the illiquid equity stakes at a discount. That’s bad news for the sellers but good news for the market: in spite of the aggressive leverage used and the market’s downturn, the equity is still worth buying. The aftermath of the private equity boom appears to be playing out with a resounding "plink" rather than the crash that many had forecast.
Further evidence of how relatively well the aftermath of the LBO boom is playing out comes from the recently filed quarterly earnings of Century 21/Coldwell Banker parent Realogy. Taken private at the height of the private equity and real estate booms, this highly-leveraged deal would seem to be a great candidate for a blow-up. For now that doesn’t appear to be the case. The company reported EBITDA of $161 million and a net loss of $27 million — nothing to brag about but, given the size of the company, not a total disaster either, given that this is the toughest real estate market in recent memory. The company noted that it remains in compliance with the covenants on its debt.
Zac Bissonnette
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