By Anirban Sen and Milana Vinn
NEW YORK (Reuters) -Carlyle Group expects to take more of its portfolio companies public this year and will not shy away from large leveraged buyouts, betting on a rebound in U.S. dealmaking this year, its heads of private equity told Reuters.
The Washington-based firm is expecting to sell $4 billion to $5 billion in assets this year either through IPOs or the sale of existing investments, roughly in line with the $5 billion of exits from its private equity portfolio in 2024.
While merger activity in the United States has had a quiet start to the year, driven partly by market concerns around the rhetoric over tariffs by the Trump administration that could lead to a trade war, Carlyle co-heads of Americas private equity Brian Bernasek and Steve Wise continue to be bullish on a resurgence in dealmaking later this year.
“Things have improved a lot during the last couple of quarters. There’s a lot more clarity around interest rates, inflation has come down, although not quite where the Fed wants it – it’s at a reasonable level and it’s leveled out,” Bernasek said in an interview.
“The stock market has been very high, valuations are very high. The S&P 500 is at all-time highs, and that’s because the economy has been growing,” Bernasek said.
Global M&A volumes have declined to $441.7 billion so far this year, compared to $523.4 billion during the same period a year ago, according to data from Dealogic. Carlyle said the impact of a potential trade war on its companies would be limited because most of them do not manufacture products that are imported into or exported outside the United States.
“Over 80% of our companies don’t have an impact from the tariff discussions, mainly because a lot of our businesses are services businesses,” Wise said.
For the quarter ended December 31, Carlyle’s profit narrowly fell short of market expectations after its global private equity business posted lower distributable earnings of $209.6 million, compared to $276.1 million a year earlier.
While its private equity business increased the pace of exits in the fourth quarter, some of Carlyle’s funds are yet to hit key return thresholds that would help translate into higher earnings for the firm.
In its post-earnings conference call with investors in February, Carlyle executives said fees from private equity are expected to decline this year, although at a more modest pace.
Carlyle’s two most recent U.S. buyout funds performed strongly last year, growing 15% and 21% respectively.
LARGE BUYOUTS
While high interest rates during the past two years have made financing large leveraged buyouts (LBOs) more challenging, Carlyle said it is prepared to strike large deals during a “higher for longer” rate environment.
“We’re not afraid to do large deals. We’re fine doing large LBOs, because oftentimes those are industry leaders with really strong relative market shares, and they are companies that are really important in the ecosystem in which they operate,” Wise said.
“Club deals,” or deals where multiple buyout firms team up to bid for large targets, lost much of their allure and have become increasingly rare following the global financial crisis of 2008, as some high-profile leveraged buyouts either performed poorly financially or ended up in bankruptcy.
In 2021, Carlyle partnered with Blackstone and Hellman & Friedman to strike a $34 billion buyout of medical supplies giant Medline. The private equity owners of Medline are now preparing a stock market launch for the firm later this year, in a deal that is expected to value it at more than $50 billion, Reuters has reported.
Medline’s planned flotation would come on the heels of the successful listing of StandardAero, an aircraft maintenance services provider backed by Carlyle, which went public in October.
“There is an opportunity to tap the IPO markets. When we take companies public, historically we’ve taken them public at around two times their value and eventually sold it around three times. So there’s been value in the public market and selling down in a good way,” Bernasek said.
(Reporting by Anirban Sen and Milana Vinn in New York; Editing by Mark Porter)
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