Analysis: Private equity mega exits become more valuable amid slow investor payouts
By David French
(Reuters) – Calpine Corp’s $16.4 billion sale of Constellation Energy is set to create a windfall for the power producer’s owners, but it raised hopes that similar mega-exits in the private equity world could help an industry struggling to return investors’ money.
The three investors – Energy Capital Partners (ECP), Canadian pension fund CPP Investments and Access Industries – and their limited partners will pocket a return of about four times the original cost, people familiar with the matter said.
Not only is the Jan. 10 deal the largest transaction in the U.S. energy industry in two decades, but Calpine owners are also poised to reward investors with significant positions in their portfolios. As for ECP, it will liquidate a quarter of its $5 billion third flagship fund, as well as stakes in other ECP vehicles, the two sources said.
Between 2020 and 2024, only 27 sales worth more than $10 billion occurred, among the 2,900 U.S. companies that took private equity during that period, making such mega-exits rare in the market, according to data provider DeLogic.
In the year A few in 2024 include GTCR and Apax Partners’ sale of insurance brokerage Guaranty to Arthur J. Gallagher for $13.45 billion, and Home Depot’s $18.25 billion acquisition of hardware supplier SRS Distribution from Leonard Green & Partners and Berkshire Partners.
Such large deals are gaining in importance as the money management industry struggles to hedge against bets made in the late 2010s and early this decade, several private investors and advisers interviewed by Reuters said.
With the overall deal situation expected to be favorable by 2025, industry participants hope that even a small increase in such transactions will improve capital recycling and weed out impatient investors.
John Grand, associate head of corporate practice at the law firm Vinson & Elkins, said: “2025 looks like there are a lot of real scenarios.
“Public stocks feel somewhat overvalued, so people are looking for private deals. Interest rates are coming down, and you’ve got political projections for the next few years.”
Goldilocks offers
Good thinking comes only after a few years. Many sales processes fail when there is a breakdown in pricing between buyers and buying companies.
