Carlyle’s Rubenstein Sees ‘Much More’ Buyout Money This Year
“We are going to see a pick-up in M&A activity and a pickup in corporate buyer activity,” Rubenstein said today in an interview with Bloomberg Television’s Cristina Alesci. “I do think that this year we will see much more money deployed than you did see last year.”
Deal volume is up 15 percent so far this year compared with the same period last year as companies and financial buyers have done transactions valued at $339 billion, according to data compiled by Bloomberg. Among buyout firms, Washington-based Carlyle was the most active among peers last year, taking part in deals worth at least $19 billion last year, according to the data.
Rubenstein said today he expects Carlyle will invest more money this year than it did in 2012, while focusing on transactions smaller than $5 billion. Leveraged buyouts of that size tend to produce better returns than larger deals because they consume less of the firm’s equity. Rubenstein said Carlyle’s “sweet spot” is an equity investment between $350 million and $1 billion.
Deals in Europe may pick up more than investors have expected as buyers see assets selling at a discount, Rubenstein said. Carlyle runs a 5.4 billion euro ($7.1 billion) fund dedicated to European buyouts, which has produced a 5 percent net internal rate of return as of Dec. 31., and is seeking 3 billion euros ($3.9 billion) for a successor pool, according to two people with knowledge of the matter.
“I like to call Europe the largest emerging market in the world, in the sense that prices are beaten down,” said Rubenstein. “The most attractive assets will probably be by more distressed sellers like banks over the next three to four years.”
Carlyle put $7.9 billion to work last year, an amount co- CEO William Conway last week said made him “pleased but not satisfied.” The firm has taken advantage of low U.S. interest rates to put its portfolio companies on healthier footing. Conway said 25 of Carlyle’s companies have recently tapped the favorable debt markets to fund deals of their own, refinance loans or do dividend recapitalizations, the process of borrowing money and paying a dividend to the owners.
“The Fed has been a real hero to the U.S. economy and the global economy,” Rubenstein said today in the interview. “They will keep interest rates pretty low for a while, and that has been a good fuel for growth in the U.S. I suspect within two to three years we will see interest rates rising.”
Rubenstein also said that sequestration, the U.S. federal spending cuts scheduled to start March 1, will go into effect because Congress may fail to agree whether a substitute plan should include new tax revenue. President Barack Obama and congressional Democrats say they want a “balanced” approach including higher tax revenue as well as spending cuts, while Republicans say they won’t agree to higher tax revenue after Congress voted Jan. 1 to raise tax rates on top incomes.
“Both sides feel that the other side will blink at some point but only after some more pressure,” Rubenstein said. “I suspect that within the first two weeks of sequestration, finally you will get the Republicans and Democrats to come together on negotiations and get a deal done. I don’t think that this will happen before the sequestration.”
Rubenstein, 63, was deputy assistant for domestic policy to President Jimmy Carter from 1977 to 1981, before co-founding Carlyle in 1987 with Conway and Daniel D’Aniello. Carlyle, with $170 billion under management, is the second-biggest U.S. private-equity firm.
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