This article has been written by Surya Rose Thomas, pursuing a Diploma in M&A, Institutional Finance, and Investment Laws (PE and VC transactions) from LawSikho.
The 1.5 billion acquisition of the Blackstone Group, a Private Equity firm, in Prestige group’s Commercial Portfolio is the viral topic in the business world today. Understanding such huge investments is vital when we live in an era that is composed of daily transactions worth billions of dollars. Who makes such huge investments? Why are such investments carried out? These are some questions that bother laymen. Here we will see what is a Private Equity Firm? Which are the top 5 Private Equity Firms that are dominating the global market?
According to the total amount of capital raised, the following is the list of the top 5 private equity firms in the world:
- The Carlyle Group – Washington D.C.
- Kohlberg Kravis Roberts (KKR) –New York City
- The Blackstone Group – New York City
- Apollo Global Management – New York City
- TPG Capital
Before coming to the details of these Private Equity Firms, understanding the concept of Private Equity is important.
What is equity?
Equity refers to the stake of the shareholders in a company. It can also refer to what investors get in the event of liquidation of the company after paying off all the debts of the company. Shareholders’ Equity can be calculated by subtracting Total Liabilities from Total Assets.
Details of the total assets and total liabilities of a company can be found from the balance sheet of the company.
What is private equity?
Private equity refers to investments made in private entities. Such investments give ownership or interest to the private equity firms and enable them to control and participate in the running and managerial decisions of the company.
What is a portfolio company?
Portfolio companies are those companies where Private Equity firms invest and secure ownership or interests. Some of the methods for investing in Portfolio Companies are:
- Leveraged Buyout (LBO)
- Venture Capital
- Growth Capital
These are the common methods for investing in Portfolio Companies.
Exit options of Portfolio Companies are:
- Initial Public Offering (IPO)
- Strategic Sale
- Second Buyout
What is a private equity fund?
The fund which is raised for investing in portfolio companies is known as the private equity fund. There are two parties in private equity funds. They are:
- A financial sponsor
A financial sponsor does the management function. That is, it manages the private equity fund and in return, it takes management fees and carries interest. Most private equity firms take this role.
Investors on the other hand provide capital to the Private Equity Fund. High Net Worth Individuals, Pension Funds, Insurance Companies, endowments, family offices, foundations, etc., are counted in the category of ‘Investors’.
Who invests in private equity companies?
Private Equity firms only resort to long-term investments mainly of four or seven years. Huge capital is required for such investments. High-net-worth individuals, pension funds, etc. mainly are the source of capital. Some of the functions of Private Equity Companies are raising capital, conducting due diligence before undertaking acquisitions, carrying out management functions, etc. They make sure that the portfolio companies in which they invest are worth their investment. To arrive at this decision they consider the parameters like the profit of the company, business model and strategy of the company, growth of the company in previous years and anticipate the future growth or potential growth, how good is the management team, quality of research and development, security, etc.
The top private equity firms in the world
The Carlyle group – Washington D.C.
This American Private Equity firm is around 30 years old with 29 offices across the continents. Founding fathers are William E Conway Jr. Daniel A. D’Aniello and David Rubenstein. Since 2000 Carlyle Group has started investing in India. Its notable investments are mainly in the medical sector. As of March 31, 2020, Carlyle has invested the US $ 2.5 billion in India. Some of their investments are SBI Life, SBI Card, HDFC, India Infoline, Delhivery, and PNB Housing Finance.
The investments in the Medical sector include Medanta Medicity Hospital, a leading hospital in the National Capital Region of Delhi, and Metropolis Healthcare, which operates a chain of diagnostic centers and laboratories.
The portfolio companies of Carlyle Group are 256. The total assets under management (AUM) are 256 billion and 1800 professionals are employed in the firm.
Kohlberg Kravis Roberts (KKR) –New York city
Founding fathers of Kohlberg Kravis Roberts (KKR) are Jerome Kohlberg Jr. and cousins Henry Kravis and George R. Roberts. They founded the firm in 1976. The firm offers global investments in the areas of private equity, credit, and real estate. The total Assets under management are $252 billion. One of the specialties of the firm is its engagement in large-scale leveraged buyouts (LBOs).
They invest in long-term businesses. As of December 31, 2020, KKR has complete transactions worth $650 billion. They invest across the world mainly in the sectors like Consumer and Retail, Financial Services, Health care, Technology. Media and Communications. They have investments in the United States, Europe, and Asia.
The portfolio companies of KKR are A-GAS, 1800 Contacts, Inc., Acteon, BMC, C.H.I. Overhead Doors, Calabrio, Citation Group, Coffee Day Resorts, Jio Platforms Ltd., etc.
The Blackstone group
This long-term investment company was founded in 1985 by Peter G. Peterson and Stephen A Schwarzman. Headquartered in New York this business giant has offices in Hong Kong, Beijing, Dubai, and London. Though Private Equity is the masterpiece, Blackstone invests in health, real estate, retail, energy, and technology. The total assets under management (AUM) of the Blackstone Group are $619. There are 95 portfolio companies where Blackstone has invested.
Financial data provider Refinitiv, electric power transmission products company Gates Corp., theme park operator Merlin Entertainments, Servpro, Ancestry, EPL, Aypa Power, Bumble are some of the notable investments made by Blackstone. Like other Private Equity Firms Blackstone also invests for the long term. With $184 billion of assets under management, Blackstone’s private equity business has been a global leader since 1985.
Apollo Global management
As of December 31, 2020, $80 billion is the assets under the management of the private equity business of Apollo. This established leader was founded in 1990 by Leon Black, Josh Harris, and Marc Rowan. It has more than 150 portfolio companies. The portfolio companies of the Apollo Group include ADT, AGS which is the innovative developer, manufacturer, and supplier of casino games, American Petroleum Partners, the life and non-life insurance company Amissima, Apollo Education Group, Diamond Resorts International, Chisholm Oil & Gas LLC, Caelus energy Alaska, etc.
As of December 2020, the fund investors of Apollo are 25% Public Pension, 20% Finance/Insurance Company, 19% Sovereign/ Governmental, 10% Others, 9% High Net worth/ Retail, 8% Corporate Pension, 7% Fund of Funds/ Consultant and 2% Endowment/ Foundation.
If we consider Apollo’s investor base by geography, as of December 2020, 60% of investments are from North America, 11% from the Middle East, 9% from Asia, 2% from Australia, and 1% from Latin America.
David Bonderman, James Coulter, and William S. Price III founded this investment company in 1992. The company is headquartered in San Francisco, California, and has branches in Europe, Australia, North America, and Asia.
This American company invests in a variety of sectors like Health, Media and Telecommunications, Industrials, Technology, Travel, Leisure, and Consumer/Retail. The firm focuses mainly on Private Equity. The capital for investment is obtained mainly from pension funds, insurance companies, high-net-worth individuals, funds of funds, individuals, and other institutional investors.
It has about $91 billion in assets and management. Also 12 offices all around the world. The portfolio companies of TPG Capital include a&o, Advantek, Advent, Agra Quest, AGS, Albreo, Ambar, American Beacon, Armstrong, Club Pilates, Continental Airlines, Digital House, etc. With more than two decades of experience, since 1993, they have invested more than $50 billion of equity capital through approximately 175 transactions.
The trend of Private Equity firms investing in private companies can be seen in India also. While discussing the top private equity firms around the world, knowing the top private equity firms in India is also important. The main Private Equity firms operating in India are ICICI Venture Fund Management, Kotak Private Equity Group, Chryscapital, Sequoia Capital, India Value Fund, Baring Private Equity Partners, Ascent Capital, Everstone Capital, etc.
For the companies that are in the initial stages of development and lacks capital for further expansion, private equity is a blessing. Not only such private companies, but the established ones also depend on private equity for expansions and other business activities. Private Equity firms mostly invest for 5-7 years. Their main aim is to exit from portfolio companies with a sizable profit. Some of the other important private equity firms are Warburg Pincus, Bain Capital, CVC Capital Partners, Advent International, Vista Equity Partners, Apax Partners, Clayton, Dubilier &Rice, H.I.G. Capital, etc.
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