One on One with Colin Blaydon, Dir., Center for Private Equity and Entrepreneurship at Dartmouth College
Tuesday, March 27, 2007
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SUSIE GHARIB: Goldman Sachs said today it plans to raise as much as $20 billion for its next private equity fund. CEO Lloyd Blankfein told shareholders at Goldman's annual meeting that amount could be a little more or a little less. The Goldman mega-fund would be larger than most of its current private equity clients, suggesting the investment bank could soon be competing for deals with those clients. The announcement comes just days after rival private equity firm Blackstone Group said it plans to go public later this year.
Joining us now for more analysis about the Goldman announcement and the private equity boom, Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth College's Tuck School of Business. Colin, a pleasure to have you on the program.
COLIN BLAYDON, DIR., CENTER FOR PRIVATE EQUITY & ENTREPRENEURSHIP: Good to be with you.
GHARIB: Well, let's begin by just talking about the outlook for this private equity business. The Goldman mega fund comes on top of all of this other private equity money that's out there. Is the bubble about to burst?
BLAYDON: Well, no one thinks that in the next few years the returns will be as high as the phenomenal returns we have seen for the last two or three years, but I don't think anything is about to burst yet.
But what could go wrong with all of this money out there, chasing all those deals?
BLAYDON: Well, the biggest thing that could happen is if one of these very dramatic and well-publicized public/private transactions these companies have done, should go bust. That would bring everybody's attention in and could cause some questioning, some fullback.
GHARIB: There is a lot of excitement about the Blackstone IPO. Does it make investment sense for individual investors?
BLAYDON: Well, for the first time, individual investors may, if they wish, get some exposure to this private equity sector. But as Blackstone said in its S-1 that it filed with the SEC, they are looking for people who are going to be long-term investors. It's not for somebody looking for a quick hit to get in and get out.
GHARIB: There's speculation that a lot of the other private equity rivals to Blackstone will be next in line to go public, the names like Carlisle come out Kohlberg, Kravis, Roberts. Is there a public appetite to own stock in these private equity companies, do you think?
BLAYDON: Well, the first one that came out recently was Fortress and it trade up with a pretty substantial first-day pop. So there's clearly an appetite out there. I think people are expecting the same to happen for Blackstone. But there is a previous history in Europe that calls into question just how big the appetite is going to be, but I think we're going to find that out this year.
GHARIB: We're seeing these private equity deals with big price tags, $30 billion, $40 billion, is there a limit? Do you see these prices -- these deal prices going even higher?
BLAYDON: Right now, given the funds that have been raised, a number of the big guys have raised funds in the $15 billion to $20 billion range. The debt markets are still generous. They're also combining on deals. So you look at the resources they've got available. Probably deals in the $30 to $40 billion range are what we're going to see. To get through 50 is going to take another substantial fund raising cycle.
GHARIB: What I find is interesting is a lot of these deals are with run of the mill kinds of companies. They're really not edgy or techie, state of the art businesses. Can one expect to get big returns from these kind of mundane companies, as it were?
BLAYDON: This has been the bread and butter of these buyout firms over their entire history. This is what they do. It's what they do well and they generated some great returns. They buy at attractive prices. They're pretty aggressive. They are superb financial engineers and put a lot of debt on the deals. And they are very aggressive in restructuring the companies and improving the cash flows and over the last three years, they have generated some phenomenal returns.
GHARIB: All right. Well, thank you very much. Really appreciate you coming and shedding some light on the topic.
BLAYDON: Good to be with you.
GHARIB: My guest tonight, Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth College's Tuck School of Business.
