Private equity firms are relying less on their competitors and more on limited partners to finance leveraged buyouts these days.
Even private equity managers that invest in middle- and small-market companies are looking to limited partners for additional capital for deals, rather than tapping like-minded private equity firms for cash, as would have happened before the financial crisis.
Recent examples of co-investment deals include:
- the C$117.1 billion (US$114.1 billion) Toronto-based Ontario Teachers' Pension Plan and Chicago-based private equity firm Wind Point Partners' acquisition of Shearer's Foods Inc., a manufacturer of private-label snacks;
- the $112 billion Austin-based Teachers Retirement System of Texas' $200 million investment in Formula One racing holding company Delta Topco Ltd. alongside CVC Capital Partners, one of the system's private equity general partners; and
- the C$152 billion Toronto-based Canada Pension Plan Investment Board and Los Angeles private equity firm Ares Management LLC's $1.6 billion acquisition of 99 Cents Only Stores.
Private equity firms are hitting up their limited partners and other institutional investors for a number of reasons, but mostly because club deals have become a hard sell.
“Limited partners let it be known that they are not fans of club deals,” said Jeffrey Golman, vice chairman and head of the investment banking group at Mesirow Financial Holdings Inc., Chicago.