bloggingbuyouts

It's widely acknowledged that buyout fever has to come to an end at some point, but few people in the press seem to be advocating this end coming soon. I guess I'm a contrarian on this issue -- I think there are clear signs that the private equity craze is wearing down. Well, a contrarian to everyone except the private equity firms' leaders.

Today, news that Apollo Management is hoping to go public through the "back door" hit the wires. This type of offering (called a 144A) allows Apollo to "sell shares of itself quickly while avoiding for several months the disclosure involved in a public offering," according to a New York Times piece on the story. This filing essentially allows Apollo to sell only to institutional and other "sophisticated investors," rather than any investor who can trade on the New York Stock Exchange. However, Apollo hopes to be trading on the New York Stock Exchange by the first quarter of next year, according to the Times.

For some reason, investors still want to buy into Blackstone Group (NYSE: BX), KKR's upcoming offering, and probably Apollo's future offering. I don't know how many times it needs to be said, but I'll say it again: these executives aren't selling to the public to share from their bounty -- they are selling out because they realize things can only get worse from here. Apollo isn't rushing to sell its company for no reason -- it believes bad times are coming.

The private equity industry has several potential negative catalysts knocking on its door. As I've been covering on this blog, the borrowing environment for private equity is only going to get harder, thus making the cost of deals much higher. Increased regulatory risk exists for the entire industry as Americans learn about the tax benefits of being one of these super-rich managers and become increasingly infuriated.

Lastly, people seem to be forgetting that we are no longer in a 2002-2004 market. The stock markets seem to be hitting new highs every day and as a value investor I can testify to the fact that value is becoming harder and harder to come by. As a result of having so much money under management, many of these funds are under pressure to make deals and buy companies, even if they risk purchasing a company without the true "value" properties they are looking for. In doing so, private equity firms are becoming more and more reliant on the low interest rates that are going to be harder to come by as well as easy IPO exits. As I recently wrote here, when private equity firms rush to the exits there are going to be severe implications for the IPO market and U.S. markets as a whole.

As I've said before, the best days of private equity are certainly behind us. But the startling fact is that the leaders of this industry seem to be in agreement on this fact and are all doing their best to jump from the ship before it's too late.