Can We Expect More Private Equity Transactions?

Neiman Marcus has been sold by private equity groups TPG and Warburg Pincus for $6 billion to Canadian PE firm Ares Management and Canada Pension Plan Investment Group (CPPIB). TPG and Warburg filed for an IPO earlier this summer but kept their options open, Forbes reports.

This transaction is not really surprising given the conditions for PE M&A activity. GF Data reported PE multiples were up to 6.4 x, the highest level in three quarters. “If you look at where we are in the cycle, it’s a good time to buy this business,” said Andre Bourbonnais, senior vice president of private investments at CPPIB.

We’ll likely see more PE activity in the coming months as firms “de-gorge” by selling their investments. This wave of PE M&A activity is more opportunistic than strategic. Based on the cycle of PE transactions and economic activity, now is the time to sell.

From 2006 to 2007 we saw a flurry of PE activity, with PE firms committing over $200 billion in 2007. Companies were holding onto acquisitions for about three years, an average that rose to five years because PE firms had difficulty selling during the recession.

The owners of Neiman Marcus who bought the firm for $5.1 billion in 2005 held on eight years – much longer than the average time for an investment. Now, as the economy picks up, PE firms that need to sell should be able to find attractive buyers.

Many deals have been held up or postponed due to unfavorable economic conditions or the inability to find a good price. With the markets picking up now and higher multiples reported, expect to see more PE firms selling their operations to strategic buyers or to other PE firms.


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