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Commercial Awareness 2023/24 Thread
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<blockquote data-quote="justkeepswimming" data-source="post: 152969" data-attributes="member: 25536"><p>(From the FT Big Read) <strong>Private equity: higher rates start to pummel dealmakers:</strong></p><p><strong></strong></p><p><strong>News brief:</strong></p><p>The higher interest rates have been affecting the private equity market. </p><p></p><p>Earlier this year, Carlyle Group appeared to be close to taking over a healthcare software company, Cotiviti, for $15bn. However, despite being one of the most powerful pe companies, Carlyle could not raise all of its roughly $3bn equity commitment. An attempt to renegotiate the $15bn valuation resulted in the deal being dropped by the owner of Cotviti, Veritas Capital, another PE firm. </p><p></p><p><strong>This shows two of the many problems facing the industry:</strong></p><p>1) PE firms are having trouble selling at the prices they want </p><p>2) PE firms are having trouble funding the deals they want</p><p></p><p><strong>Why are high-interest rates affecting PE firms:</strong></p><p>Post-financial crisis, PE firms thrived on cheap debt to acquire struggling companies for profit.</p><p></p><p>However, now, with the hiatus of new money flowing into PE funds and existing investments facing refinancing pressures, PE is facing troubles.</p><p></p><p><strong>New tactics:</strong></p><p>In such conditions, PE firms are resorting to various kinds of financial engineering. One of which is to borrow money at fund level rather than company level. This means the pe firms are taking on debt themselves. As the firms are financially stronger than the companies they are buying, they are seen as a safer option to lend to, allowing them to get better interest rates on their debts, meaning lower. </p><p></p><p><strong>Affect on law firms:</strong></p><p>Directly there is very little effect. </p><p></p><p>Indirectly:</p><p>Law firms make a lot of money from PE deals. They will need to understand the changing environment and all the new methods of acquiring financing that these PE firms are turning to to understand best how to advise them and to show their expertise in advising them in such situations. </p><p></p><p>Position:</p><p>Some believe this is a rough path for PE, while others think it signals a longer problem. </p><p></p><p>PE thrives in low-interest rates. While the UK and US have paused interest rate hikes, the BOE has stated that it will not reduce rates anytime soon. We are in this higher interest rate period for some time, it seems. Law firms and investment banks will be closely watching and trying to come up with solutions to keep pe alive.</p></blockquote><p></p>
[QUOTE="justkeepswimming, post: 152969, member: 25536"] (From the FT Big Read) [B]Private equity: higher rates start to pummel dealmakers: News brief:[/B] The higher interest rates have been affecting the private equity market. Earlier this year, Carlyle Group appeared to be close to taking over a healthcare software company, Cotiviti, for $15bn. However, despite being one of the most powerful pe companies, Carlyle could not raise all of its roughly $3bn equity commitment. An attempt to renegotiate the $15bn valuation resulted in the deal being dropped by the owner of Cotviti, Veritas Capital, another PE firm. [B]This shows two of the many problems facing the industry:[/B] 1) PE firms are having trouble selling at the prices they want 2) PE firms are having trouble funding the deals they want [B]Why are high-interest rates affecting PE firms:[/B] Post-financial crisis, PE firms thrived on cheap debt to acquire struggling companies for profit. However, now, with the hiatus of new money flowing into PE funds and existing investments facing refinancing pressures, PE is facing troubles. [B]New tactics:[/B] In such conditions, PE firms are resorting to various kinds of financial engineering. One of which is to borrow money at fund level rather than company level. This means the pe firms are taking on debt themselves. As the firms are financially stronger than the companies they are buying, they are seen as a safer option to lend to, allowing them to get better interest rates on their debts, meaning lower. [B]Affect on law firms:[/B] Directly there is very little effect. Indirectly: Law firms make a lot of money from PE deals. They will need to understand the changing environment and all the new methods of acquiring financing that these PE firms are turning to to understand best how to advise them and to show their expertise in advising them in such situations. Position: Some believe this is a rough path for PE, while others think it signals a longer problem. PE thrives in low-interest rates. While the UK and US have paused interest rate hikes, the BOE has stated that it will not reduce rates anytime soon. We are in this higher interest rate period for some time, it seems. Law firms and investment banks will be closely watching and trying to come up with solutions to keep pe alive. [/QUOTE]
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