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Like a play with one act remaining, the plot lines in private equity’s saga were unresolved in 2010. The industry appeared to be on the mend but the future was murky.
A year later, it is plain that the buyout business has survived this economic bust just as it had several prior ones. When we finalized the hardback edition of King of Capital , buyout activity was downright anemic, and many of the big-ticket investments that private equity players had splurged on from 2005 to 2007—at the top of the market—were in sorry shape. Since then, things have taken a sharp turn for the better, thanks to a recovering economy and ultralow interest rates, which have buoyed corporate earnings and the values of private equity investments. Most, but not all, of the inventory of mid-decade megadeals are now well above water—the investments worth at least what was paid for them. New buyouts are being minted. Blackstone Group’s stock, which hit a low of $3.55 in February 2009, bounced back to nearly $20 at one point in early 2011.
Over that year, several of the key themes that emerged as we traced the history of Blackstone and of leveraged buyouts have also become even more manifest. Most significantly, the drive by the elite private equity houses to diversify away from buyouts and to go public has gained speed. The slump that socked them with heavy losses has turbocharged such efforts, which are altering—even reinventing—the industry’s business model.
In this edition, we have recast the conclusion, Chapter 26 , to reflect more recent events and we have updated our case studies of Blackstone investments in the penultimate chapter as well as some of the statistics there. We have also made minor revisions and corrections elsewhere.
October 2011