A Goldman Sachs bigwig (insert: bald guys at Goldman joke here) is predicting that there will be fewer big private equity club deals in the future, according to a Reuters report from that private equity conference in Germany. The reason: they don't need each other anymore. It's like the trophy wife who gets rich on her own and doesn't need to sleep with the old dude anymore. (Decide for yourself who is the trophy wife and who is the old dude in that analogy.)
But don't take our word for it. Here's Reuters:
While as many as eight buyout firms have teamed up in recent years to acquire a single company, the firms say those days are numbered as they raise bigger funds on their own and aim to shrink the number of partners on a given deal.
"I think we'll see fewer, bigger clubs because people can write larger checks on their own now," Sanjay Patel, European co-head of Goldman Sachs' investment arm, said on Wednesday on the sidelines of the Super Return private equity conference.
The biggest buyout firms have been raising funds in the range of $10 billion to $20 billion (5 billion to 10 billion pounds) , more than double the size of their previous efforts, giving each of them more cash to put to work and reducing the need for partners.
And, in case you thought we were stretching things with the whole "this marriage isn't working out" analogy, it turns out it isn't just money. Well, it is. But mo' money, mo' problems. Because of all that money, well, they've just grown apart.
But there is also a creeping fear that one of the big club deal acquisitions of the past few years could hit operational roadbumps and plunge the multiple firms involved into bitter in-fighting that could make it harder to reach consensus on how management should proceed.
One interesting question raised by this development is whether it increases or decreases the chances of action by federal authorities who late last year announced they were looking into the world of private equity. The club deals were cited at the time as a possible way for private equity firms to cooperate with each other to hold down the purchase price of the companies they were acquiring. So the end of big clubs should mean that this problem is going away right? Or does it mean that the private equity world is getting even smaller, with more and more capital gathered by the biggest firms who have less and less need to bring smaller private equity shops into the deal?
Private equity firms invite fewer to the clubs