Johannes Huth, the top executive at private equity group KKR in Europe, had been eyeing cosmetics maker Coty for nearly two decades — longer than even some of its loyalest customers have been using its products, which include Wella hair colour, Marc Jacobs fragrance and Ghd hair straighteners.
As the coronavirus pandemic spooked rival bidders for Coty’s professional beauty division that was put up for sale last year, Mr Huth pounced. He struck two deals in quick succession, agreeing to buy a majority stake in the unit at a cut-price valuation and invest $1bn in Coty, in the process taking a seat on its board.
KKR, which has about $207bn in assets under management, is one of a handful of mostly US-based private equity groups that have taken a bullish view during the crisis. Between them they have aggressively struck deals when others have stayed on the sidelines.
The top 10 ranking private equity groups by deal count have announced deals worth a total of more than $40bn since the beginning of March, according to FT analysis using figures from data provider Refinitiv — even as economists predict the worst contraction since the Great Depression of the 1930s.
The figure, which covers 11 firms since some are jointly-ranked, is more than a third of the $103bn that all private equity groups worldwide spent on acquisitions in the final three months of 2019. It is also likely to underestimate the scale of dealmaking because some deals — such as investments in Mukesh Ambani’s telecoms operator Reliance Jio of $1.5bn by KKR and more than $1bn by Silver Lake over the past month — do not meet the criteria for inclusion, which require minority stakes to be more than 3 per cent.
“Our active investment pace since the beginning of Covid has been quite intentional,” said Joe Bae, co-president and co-chief operating officer of KKR, whose $16.9bn in deals is almost 43 per cent of the total. The firm is “capitalising on the unprecedented level of volatility and dislocation in the markets to buy high-quality businesses at attractive prices,” he added.
One adviser to KKR, which on Tuesday led a $650m deal for a stake in the property arm of Vietnam’s biggest conglomerate, said it has “taken out the playbook and is using every chapter on how to deploy capital” during the crisis. “It’s auction processes, it’s proprietary deals, it’s public, private, control, single-percentage minority, carve outs, it’s all sectors . . . there’s no rock unturned.”
In contrast to their US rivals, European private equity groups such as CVC, Permira and BC Partners have struck far fewer deals in recent months.
In February, just as the pandemic began to take hold, London-based Cinven alongside Advent International signed a €17.2bn deal to buy Thyssenkrupp’s lifts business — Europe’s biggest buyout in at least a decade. Since then it has been trying to reduce its exposure to the acquisition and convince other investors to help it pay for the business.
Meanwhile, buyout executives’ attention has been diverted to shoring up the companies their groups already own around the world, many of which have been hit hard by the effects of the pandemic.
Amid these headwinds, many US-based private equity groups — which account for eight of the 11 most active buyers since the beginning of March — have more flexibility than their European counterparts. This reflects how they have spent the past decade expanding their operations beyond their roots in buyouts to include other businesses such as credit, distressed investing, infrastructure and technology funds.
That has given them more capacity to strike deals, as well as opportunities to buy debt and equity stakes in companies hit by the crisis on advantageous terms.
“There’s a bit of a dichotomy between the big American [firms] that have a different asset strategy and different pockets of capital, versus the firms who only do traditional private equity majority-control buyouts,” said Simona Maellare, global co-head of UBS’s alternative capital group. “It’s much harder to do them at this time.”
The most active firms by deal count have disclosed a total of 140 deals since March, including buyouts, purchases of stakes and add-on acquisitions in which a private equity group buys a company to merge with one it already owns.
They range from Silver Lake’s stakes in hard-hit, travel-dependent companies such as Airbnb and Expedia to the €5bn takeover of Spanish telecoms operator MasMovil by Providence Equity Partners, Cinven and KKR — one of the largest buyouts since the pandemic began.
Recent deals tend to fall into one of three groups, said Charles Hayes, global co-head of the financial sponsors group at law firm Freshfields.
“There are deals that were already afoot pre-crisis and have continued, maybe on different terms, because they still make sense,” he said. Other purchases are either “primarily opportunistic” or are based on “planning for the post-crisis environment, often tech deals”.
Some of the most active firms are drawing parallels with the previous crash, when they could buy companies more cheaply. “One of the most productive periods for us was after the global financial crisis,” said John Connaughton, co-managing partner at Bain Capital, the second-most acquisitive private equity firm since the beginning of March. “Investors wish they had deployed more capital in 2010, 2011 and 2012.”
Bain is bidding for the assets of Virgin Australia, the country’s second-largest airline, which has filed for bankruptcy protection. While the group does not have “a top-down mandate that we’re trying to put more money to work in this environment,” said Mr Connaughton, “in certain sectors we’ve been able to find opportunities.”
However, as stock markets have rallied despite record-high unemployment rates and unprecedented falls in gross domestic product, some dealmakers are fretting that they may have missed the boat.
One European private equity executive said that because many companies’ valuations were still high, buying now would typically mean “pricing in a model of recovery that in reality is at odds with everything we are seeing in terms of [the] GDP impact from the shutdown”.
That may not stop even some of the more cautious buyout firms from seeking ways to restart dealmaking.
“There’s been a shift in the mood,” said Anna Skoglund, head of Goldman Sachs’ financial and strategic investors group for Europe, the Middle East and Africa.
“In the early part of the lockdown people were mainly focusing on their portfolio companies, setting aside a small handful of players . . . today the majority of them are looking at new deals.”
Additional reporting by Arash Massoudi in London