Publicly traded PE firms could absorb rivals in a quest for growth

Publicly traded US PE firms could focus more of their firepower in the coming quarters on acquiring stakes of competing firms as they look for ways to grow and sustain their stock prices.

Given the strong US dollar and slowing economy—and as pressure from investors continues to rise—public PE institutions are likely to see more opportunities to make domestic and international platform acquisitions in the months ahead, according to our latest analyst note on US public PE firms.

A number of factors could drive a GP to consider selling itself to another private investor, according to PitchBook analyst James Ulan.

"GP consolidation has been more driven by the broader trend of large GPs seeking growth and diversification via acquisition," Ulan said. "As large public PE firms have expanded, they've commanded a greater proportion of LP assets, making fundraising more difficult for small GPs. This could be causing some GPs to consider selling. And as in many industries, size often means higher profit margins."

Both CVC Capital Partners and L Catterton have reportedly expressed interest in pursuing an IPO—joining firms including Blackstone, Apollo Global Management, KKR and others tracked in our PE Earnings Dashboard.

Analysts say they believe public PE firms will target GPs in Asia, Europe and North America—and that a recession would boost these efforts, as public firms have historically acquired GPs and other assets amid periods of market turbulence, according to the analyst note.

Ares Management, a publicly traded asset manager, has made recent GP acquisitions, including a buyout of Landmark Partners last year as well as the US real estate investment advisory and distribution business of Black Creek Group. Earlier this year, the firm also landed the infrastructure debt platform of AMP Capital.

In March, KKR agreed to acquire Mitsubishi Corp.-UBS Realty, a Japanese real estate asset manager.

Investors in TPG and Blue Owl—the two most recent firms to go public—are likely asking their management about long-term growth plans, which could include taking stakes in other private investment firms, despite both having strong organic growth prospects, Ulan said.

Earlier this month, Blue Owl Capital's Dyal Capital Partners unit was said to be in talks to acquire a stake in French private equity firm PAI Partners, Bloomberg reported.

Featured image by archimede/Shutterstock

This article originally appeared on PitchBook News