The largest lender to college students is talking to private equity bidders, the New York Times said this morning. Sallie Mae is supposedly on the block for around $20 billion. Blackstone is rumored to be one of the bidders.
Some are a bit surprised that private equity would be interested in getting involved with such a heavily regulated, heavily scrutinized business.
While the price — Sallie Mae has a market value of $16.7 billion — would be well in the range of other recent buyouts, the company is still an unusual target for private equity. The financial services industry has been mostly been bypassed by the recent wave of buyouts because those companies usually have capital requirements that prevent them from taking on the required debt. Sallie Mae presents other difficulties by dint of the federally subsidized loans that constitute the majority of its $142 billion portfolio.
But you aren’t. Because you already know that private equity firms are increasingly looking for political opportunities. The giant TXU deal is basically a political play, with KKR and TPG betting that they can avoid the pitfalls that have stymied the Texas energy companies growth in Texas simply by not being current management. Similarly, the Sallie Mae play most likely relies on the current troubles of the company putting downward pressure on its market cap. A new owner could plausibly claim to be cleaning up the lender’s act.
Sallie Mae Said to Talk to Suitors [New York Times]