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By Matthew Quinn
Now that M&A and IPO activity is warming up, private equity firms appear ready to run for the exit doors. At least Blackstone Group is.
The firm is planning to take up to eight of its portfolio companies public and expects to sell five others, according to Reuters, citing an unnamed source who received a letter the firm sent to investors on Friday.
You have to wonder if there is a real rush for Blackstone to exit these investments. Fund raising has been difficult for private equity firms this year as investors seem intent on remaining liquid until they're thoroughly convinced the worst of the financial crisis is over.
During the buyout boom when debt was cheap, it was easy for firms to employ a "strip 'em and flip 'em" approach to deals. But when the credit markets seized up, there were widespread expectations that investment hold periods were going to be extended substantially.
The letter should give Blackstone investors some solace that exits can still be found.
On a more macro level, the mix of exit strategies is reassuring, as well.
CFOZone reported recently that venture-backed companies have had some success tapping the IPO market, but have been largely ignored by corporate acquirers.
Blackstone, on the other hand, said it has announced four sales and another is imminent.
"At least for private equity, the worst is behind the industry," Blackstone founder Steve Schwarzman said in the letter, according to the Financial Times.
It will be interesting to see what the Blackstone portfolio companies look like if they go public. Many of the deals in recent years had extremely high debt levels, which has helped push the U.S. speculative-grade default rate to 12.9 percent as of Sept. 30, according to Moody's Investors Service.
When it was apparent that exits would be harder to come by, private equity firms were forced to take a harder look at their existing investments.
Time to check out their handy work.
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