From Atlanta to Zurich, the M&A market spans the globe and accounts for hundreds of billions of dollars worth of deals.
profiles some of the sector's major players - both in the Middle East, and around the world.
United States of America
Omaha, Nebraska is the home of holding company Berkshire Hathaway and its legendary chairman and CEO, Warren Buffett. The ‘Oracle of Omaha' is the third-richest man in the world, having amassed a personal fortune of around US$52bn from astute investments managed through the company.
Berkshire Hathaway's core business is insurance, including property and casualty insurance, reinsurance and specialty non-standard insurance. Conducted through more than 50 domestic and foreign-based insurance firms, Berkshire's businesses provide insurance and reinsurance of property and casualty risks primarily in the US. In addition, as a result of the General Re acquisition in December 1998, Berkshire's insurance businesses also include life, accident and health reinsurers, as well as internationally-based property and casualty reinsurers.
Meanwhile, Buffett has used the ‘float' provided by insurance operations to finance his own investments - and he rarely gets one wrong. While in the early part of his career at Berkshire, he focused on long-term investments in publicly quoted stocks, more recently he has turned to buying whole companies. As a result, Berkshire now owns a diverse range of businesses including candy production, retail, home furnishings, encyclopedias, vacuum cleaners, jewellery sales, newspaper publishing, and the manufacture and distribution of uniforms and footwear.
The Carlyle Group
United States of America
Politically connected and phenomenally powerful, the Carlyle Group is the embodiment of the US's vast military-industrial complex, better known as the ‘Iron Triangle'. Playing heavily in the highly government-regulated defence industry, the firm's name is synonymous with controversy and conspiracy. The unashamed use of prominent politicians across the world as fundraisers, lobbyists and advisors is a defining feature of the group's operations.
Founded in Washington in 1987, the Carlyle Group has more than US$17.4bn under management. By its own estimation the firm has completed more leveraged buyouts and venture capital investments in the defence and dual-use technology industry than any other PE company on the planet.
Critics fear that the firm has become so influential through its political connections that it has the ability to effect change in government policy in order to benefit investments. Such suspicions are inspired by the impressive array of politically connected individuals associated with the firm (see below), and some of the more controversial deals Carlyle has brokered - such as the 1997 acquisition of United Defense, one of the US's largest military contractors.
Last week it was revealed that the group paid Washington-based lobbying firm Ogilvy Government Relations US$260,000 to lobby the US government in the first half of 2007. Ogilvy fought against proposed legislation that would raise taxes for private equity firms and their managers, and on a series of foreign investment issues.
Among the biggest PE deals in the world, significant takeovers by Carlyle include car-company Hertz for US$15bn in 2005 and the May 2007 acquisition of Kinder Morgan, one of the largest energy transportation storage and distribution companies in North America, for US$21.6bn. With fellow PE house Bain Capital, the group is currently looking to acquire the construction-supply unit of Home Depot Inc, the US's second largest retailer.
A pioneer of PE in Asia, some high-profile setbacks in China have marred its performance in the region.
United States of America
One of the world's largest private equity firms, Blackstone Group was founded in 1985 and is based in New York City, with offices in Atlanta, Boston, London, Hamburg, Paris, Mumbai, and Hong Kong. A stalwart of the US's burgeoning PE sector, it is renowned for its part in the migration of companies from public to private hands - a market worth in excess of US$370bn in transactions in the US over the last year. In recent years Blackstone has made significant investments in the hotel and commercial real estate industries by buying seven large publicly-traded firms and taking them private. The most prominent acquisition came this summer when the Blackstone Group and Hilton Hotels Corporation announced plans for the PE player to acquire the giant hotel chain with all its debt assumed in a cash deal valued at US$26bn.
This year, the Blackstone Group also sold Global Tower Partners to Macquarie Infrastructure Partners for an enterprise value of US$1.425bn, and purchased The Tussauds Group for US$2bn from Dubai International Capital.
In December 2006, Blackstone as part of a Consortium of private equity funds including Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co. and TPG, agreed to purchase all stock shares of Biomet for approximately US$10.9bn. Biomet is a worldwide manufacturer and marketer of hip, knee, shoulder, and spinal implants and supporting surgical supplies for the orthopedic industry. On a larger scale, a month earlier Blackstone agreed through its affiliate, Blackstone Real Estate Partners, to acquire billionaire Sam Zell's Equity Office Properties Trust, for approximately US$39bn - a deal that became the biggest takeover of a real estate company and one of the largest PE deals in history.
Kohlberg Kravis Roberts & Co. (KKR)
United States of America
New York-based KKR is known for playing hard and fast. Pioneers of the leveraged buyout, the men behind the infamous firm are perhaps better known as the ‘Gordon Gekkos' of the PE world. With an aggressive approach to acquiring target companies the firm is commonly held to epitomise all that is menacing and unethical about PE: heavily leveraged takeovers favouring the issuance of high-yielding junk bonds to raise funds; ruthless restructuring and cost-cutting; and of course, massive returns on investment. KKR was established in 1976, and in 1979 became the first PE firm to complete the takeover of a public company. In 1988 it broke records with the buyout of US conglomerate RJR Nabisco. With a price tag of US$31.4bn, including net debt of US$6.3bn, the acquisition marked the highest price ever paid for a company, when adjusted for inflation. This record is about to be re-set - by another KKR-led acquisition. In February the company announced plans to takeover energy company TXU, originally valued at US$45bn. KKR is expected to list on the New York stock exchange in September with an IPO worth US$1.25bn. Investors have shown little appetite for the stock, but the company has persistently denied rumours that it will postpone the move.
Defying credit market turmoil, KKR is currently on track to complete a US$26bn buyout of First Data, a US payments and credit card processing firm, having concluded a controversial buyout of Alliance Boots.
Yet despite its successes, the firm has suffered from some heavy losses on recent investments, and many of its original partners have bailed out. The iron rule of remaining founders Kravis and Roberts reigns supreme at KKR, yet unresolved succession issues cast a shadow over the firm's future.
United States of America
A model of the US corporate image, Bain's original US$37m fund was raised entirely from private individuals in mid-1984, led by Ricardo Poma, a Salvadorean businessman. Conceived as a combined equity start-up and leveraged buyout fund one of the fund's first start-up investments was Staples, Inc., the US$15bn office supply retailer.
Today, 23 years after its inception Bain Capital currently manages US$40bn in assets and holds positions in such iconic American companies as Toys ‘R Us, Burger King and Unisource. It has been a busy summer for the firm too. In June, Bain, Carlyle Group and Clayton, Dubilier & Rice agreed to acquire Home Depot Supply for US$10.3bn, each firm buying a one-third stake in the division. Negotiations over the deal are ongoing and in recent weeks the price has dropped. Just a week after registering their Home Depot interest though, Bain signed a deal with Guitar Center to acquire the music retailer for US$1.9bn, plus US$200m in debt. The buyout will be for US$63 per share, a 26% premium on its June 26 closing price, and is expected to be completed before the end of the year.
Chaired by the formidable Baroness Hogg, 3i Group was established in 1987. The somewhat cryptically named London-based PE investment company is in fact a spin-off of a syndicate of banks formed in 1945 to invest in industry. To dispel any lingering sense of confusion, 3i simply stands for ‘investors in industry.'
Since then the company has emerged as Europe's largest publicly traded buyout and venture capital firm. Last week it was confirmed that Saudi Arabian billionaire Maan Al Sanea had purchased a 5% stake in 3i Quoted Private Equity, a unit of 3i Group. The business's most recent strategic move is into India where phenomenal GDP growth rates are beckoning investors from across the globe. Last week it announced plans to raise US$1bn for a fund to invest in Indian roads, ports and other infrastructure. In the coming years the Indian government plans to build US$320bn worth of infrastructure projects to relieve crippling congestion. 3i is hoping to cash in on the investment potential in such projects, in a country where it take 10 times longer to unload and reload a ship at port than it does in Hong Kong or Singapore. It is also relying on the environment where it has invested millions in projects including wind power.
It is worth noting that 3i chief executive Phillip Yea moved to the company from the Bahrain and London listed PE house, Investcorp.
Government Pension Fund
Norway's Government Pension Fund was launched in 1990 to invest parts of the huge surplus produced by the country's petroleum income. Its most recent valuation stands at a cool US$317bn. As such, it is the largest pension fund in Europe, and the second largest in the world. ‘The Petroleum Fund', as it is commonly referred to, is administered by Norges Bank Investment Management (NBIM), a part of the Norwegian Central Bank. Despite predictions that revenue from the petroleum sector is now in its peak period and is set to decline over the coming decades, NBIM forecasts that the fund will reach US$522bn by the end of 2009 (at 2007 exchange rates).
Since 1998 the fund has been allowed to invest up to 50% of its portfolio in the international stock market, however due to the large size of the fund, it has become a hotly debated political issue. Critics claim that the country should be using its oil revenues to solve current problems, instead of risking it on financial instruments, however calculated. They also point to the volatility of world stock markets, particularly in the current climate, and have pressured the Ministry of Finance into including ethical guidelines into the fund's management regulations. As a result several companies - Boeing, BAE Systems, Lockheed Martin and Wal-Mart among them - have been blacklisted due to involvement in businesses such as arms production and tobacco.
Kingdom of Bahrain
No iconic landmarks, hip hotels or football legends here - yet. Nursing homes, water suppliers and wind-farms are not the stuff of billionaires' dreams, but Bahrain-based investors are happy to enjoy less of the glitz and glamour sought by neighbouring Gulf states when it comes to securing assets overseas. They have, however, proved themselves to be astute in identifying strategic investment opportunities.
Less than two weeks ago Arcapita, one of Bahrain's biggest players on the international stage, announced plans to sell its one-third stake in the UK-based Zephyr wind-farm portfolio for US$287m. Having bought its stake in 2004 for just US$65.3m, the investment marks one of the firm's most profitable assets.
Professional and perceptive, Arcapita represents a new type of foreign-focused PE house and has moulded itself on close rival Investcorp. Operating out of Bahrain, London and New York, Investcorp is listed on both the Bahrain and London stock exchanges and has been investing Gulf money in Western assets since as far back as 1982.
An Islamic compliant investment house, Arcapita is among Islamic financial institutions from the region pioneering Sharia compliant PE deals. The firm has invested heavily in European utilities, logistics and building material companies including Northern Ireland's biggest electricity supplier Viridian; the UK's South Staffordshire Water; and Finland-based insulation manufacturer Paroc. The firm holds about a fifth of its real estate assets in the UK, favouring industrial units and high-end nursing homes.
Earlier this month Arcapita acquired Profine, a German maker of windows and PVC door fittings, from US-based PE groups Carlyle Group and Advent International.
High profiles and high prices are the defining features of the overseas acquisitions made by Qatar in recent months. The activities of funds associated with the Royal family have prompted a storm in the European press as they have sought to snap up trophy assets in the West.
Prominent among the movers and shakers of the Qatari overseas investment scene is Prime Minister Sheikh Hamad bin Jassim Al Thani. With an impressive portfolio of his own, Sheikh Hamad also heads the Qatar Investment Authority (QIA): a body that is emulating Dubai in its fearless approach to securing foreign assets.
The Qatari-controlled fund Delta Two shot into the limelight in April with its move to acquire 17.6% of the iconic British supermarket chain, J Sainsbury's. Since then Delta Two has upped its stake to 25%, making a formal takeover bid in July. Opposition from the Sainsbury family has been strong and the company is still locked in negotiations to complete the takeover. To compound their woes, equity market turmoil has frustrated Delta Two's attempts to secure financing for the debt-heavy deal.
Earlier in the year Qatar's interest in UK assets became apparent with an attempt by the QIA to buy a 9.9% stake in Arsenal Football Club, one of the country's premier clubs, for US$96m. Although it was eventually beaten by American sports tycoon Stan Kroenke, an Arsenal deal for Qatar could have sparked some interesting off-the-pitch tensions closer to home. The club is sponsored by Dubai's Emirates Airline, which provided US$193m for the naming rights to Arsenal's slick new London stadium for the next 16 years.
Last year Qatar lost out to Australia's Macquarie's Bank in its bid to buy the UK's largest water company, Thames Water from its German owner, RWE AG.
Abu Dhabi Government
United Arab Emirates
Abu Dhabi is sitting on almost 10% of the world's oil reserves, and has formed two distinct state investment bodies to manage its extraordinary wealth. Yet while the Abu Dhabi Investment Council concentrates on investments within the UAE, its sister organisation the Abu Dhabi Investment Authority (ADIA) is undoubtedly the more prominent, as a result of its size and international focus.
ADIA is one of the biggest government investment authorities in the world, and the largest fund in the region with an estimated US$600bn. It is responsible for investing all of the Abu Dhabi government's oil revenues and assets in countries across the world, owns the Abu Dhabi Investment Company, and enjoys portfolio growth of around 10% year-on-year.
In 2006 its asset allocation was split roughly 50% to 60% in equities, 20% to 25% in fixed income, 5% to 8% in real estate, 5% to 10% in private equity, an area it has been investing in since 1992, and 5% to 10% in alternatives. It has backed a series of ambitious and diversified financial services firms, including taking minority stakes in Egypt-based EFG-Hermes, and LA-based debt manager Ares Management, and is preparing to take a stake worth around US$800m in Leon Black's alternative investment firm, Apollo Management. Just last week, ADIA sealed a US$1.2bn deal to acquire a huge tract of land in Malaysia's southern state of Johor, according to the Southeast Asian nation's US$105bn blueprint to build an industrial and tourism zone close to its border with Singapore.
United Arab Emirates
Another month, another billion-dollar deal for Dubai. August's US$5.2bn MGM deal is just the latest step in the emirate's quest for global domination - and to facilitate this, government-owned entities Dubai World and Dubai Holding each boast a flagship investment subsidiary, Dubai International Capital (DIC) and Istithmar respectively.
Istithmar has spent an average of US$1bn each year since its foundation in 2003, and is tipped to secure an additional US$3bn of assets this year. It has an estimated US$8bn of assets under management, including stakes in Standard Chartered bank (US$1.2bn for a 2.7% slice), and spent around the same figure to acquire 280 Park Avenue in New York. The company also picked up the QE2 cruise liner for US$100m, and just last month paid US$942.3m for luxury clothing store Barneys New York, from Jones Apparel Group.
Private equity investment firm DIC is looking to quadruple its US$6bn of assets under management within the next two years. In order to achieve this target, is has restructured itself into four divisions, and successfully diversified away from its core proficiency. The result is a public equities division for its minority stakes in listed companies, including banks ICICI and HSBC, carmaker DaimlerChrysler and European defence company EADS; an asset management arm; and an emerging markets division to cover the Middle East, North Africa, Asia, Eastern Europe and Latin America.
However, that's not to say that DIC has forgotten all about its PE priorities. The firm has primarily invested in secondary buyouts, including the US$1.6bn purchase of leisure group operator Tussauds Group; the US$1.4bn deal for aircraft engine manufacturers Doncasters; and the purchase of budget hotel chain Travelodge for US$1.35bn. Sameer Al Ansari, chairman and CEO of DIC, has revealed that the private equity division manages up to US$5bn in assets, excluding a remaining 20% stake in Tussauds Group (after its US$2bn sale to Blackstone earlier this year). He expects this to reach US$10bn in two years, and also that the global public equities division will be managing US$10bn within the same time frame. Emerging markets will invest another US$5bn in order for the group to hit its ambitious US$25bn target.
Singapore's leading state-backed fund, Temasek manages a portfolio worth more than US$100bn, focused primarily in Asia, and is said to have US$65bn in assets. It is an active shareholder and investor across industry sectors as diverse as banking & financial services, real estate, transportation and logistics, infrastructure, telecommunications & media, bioscience and healthcare, education, lifestyle, engineering & technology, and energy and resources.
Temasek owns stakes in many of Singapore's largest companies, including SingTel, DBS Bank, Singapore Airlines, PSA International, and SMRT Corporation. It also holds investments in public icons such as the Raffles Hotel and Singapore Zoo, and a stake in the island nation's only legal betting company, Singapore Pools.
Outside Singapore Temasek holds stakes in telecommunication companies such as Telekom Malaysia. It has also made investments in foreign financial institutions such as PT Bank Danamon in Indonesia and NIB Bank in Pakistan. Meanwhile Temasek-linked companies also hold an extensive global portfolio, for example, SingTel's ownership of Australian telco Optus.
Although 75% of Temasek's investments are in Singapore, it has set a target of eventually reducing this figure to a third. Another third will be in developed markets, while the final third is earmarked for investment in developing economies.
Just last week, it was revealed that Temasek offered US$1.6bn for US exchange Nasdaq's stake in the London Stock Exchange (LSE). However Nasdaq, which has appointed UBS to handle the auction, has said previously that it would not sell its LSE stake to a single bidder.
In more discouraging news for Temasek, the firm has also lost US$300m on its investment in Barclays within the space of a month - the fund took a 2.1% interest in the bank in late July, but amid the turmoil in the world's financial markets, shares in Barclays Bank have fallen by 15% from the price that Temasek agreed to pay, thereby cutting the value of its holding from US$1.94bn to US$1.64bn.
The Peoples' Republic of China
True to form, China remains secretive about its foreign investment activities. Little is known about what the government is planning to do with its colossal stockpile of foreign exchange assets, valued at more than US$1.3 trillion - so naturally, speculation is rife.
A mysterious sovereign wealth fund is due to launch in September, although no official date has been set. And further details are even more hazy.
In fact, this embryonic organisation is being kept so closely under wraps that Jesse Wang, vice chairman of Central Huijin Investment (CHI), the central bank's investment arm, and apparent spokesman for the venture, has refused to even reveal its name. Nevertheless, we can rest assured that it will not be called the State Investment Company, as was reported recently in some quarters.
China's flirtations with high-profile foreign purchases hit the headlines in June with its US$3bn acquisition of a stake in the US-based PE house, Blackstone Group. Undertaken by China Hujin Investment, the subsequent poor performance of Blackstone's shares has resulted in embarrassing losses and sparked accusations of poor investment decision-making.
The new investment agency seems to be a reformation of CHI and is set to take control of US$200bn, or 15%, of China's foreign exchange holdings. Around two-thirds of these reserves are believed to be held in dollar assets. Lacking experience in the international marketplace it will draw on the help of foreign asset management firms to invest on its behalf and seek to entice foreign investment professionals to the ranks of its senior management. Moulded on Singapore's Temasek, CHI is set to plough more than US$20bn into state-owned China Development Bank (CDB). CDB recently bought a 3.1% stake in UK-based Barclays Bank. China is a PE player to keep an eye on.
The Australian monolith is affectionately known as the ‘millionaire maker.' And less affectionately known as ‘the house that debt built.' Quietly operating from its headquarters in sunny Sydney, Macquarie Bank has launched some of the most audacious M&A bids on record, earning some fantastic fees in the process. The bank operates under the direction of Allan Moss.
Not surprisingly he is Australia's highest paid executive, pocketing an eye-watering US$27m in 2006. Macquarie Bank dominates Australia's capital raising landscape. Over the years Macquarie has successfully transformed itself from an Australia-focused outfit to an international force to be reckoned with.
In large part this has been achieved by perfecting the practice of buying infrastructure assets including roads and airports, bundling them into funds and selling them on to investors. The Macquarie Infrastructure Group is dominant among operators of private toll roads across the world.
There is no doubt that the bank has proved adept at structuring some of the most complex business models around to support its financing operations. And while these have proved enormously successful there are fears that they make the bank especially vulnerable to credit market volatility.
Some analysts have commented that given the complexity of Macquarie's operations, you need a PhD in mathematics to understand how it generates its colassal earnings. As a bidding war looks set to erupt over shares in the London Stock Exchange (LSE), it is worth mentioning that Macquarie has been there and tried that. In 2005 the bank attempted a hostile takeover bid of the exchange, but its US$2.6bn valuation was firmly rejected by the LSE management as ‘derisory.' You see, not all private equity firms get what they want.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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