BUYOUT GROUPS ARE becoming more nimble in avoiding the problems caused by the credit crunch by making minority investments to offload record levels of capital raised last year.
Private-equity firms globally undertook 848 minority investments valued at $49.1 billion last year, more than double the $21.6 billion in 633 investments for 2006, according to data provider Thomson Financial.
Following the credit crunch last summer, the tendency to acquire minor stakes was more marked with buyout groups spending almost $30 billion for minority holdings in the second half, 45% more than was invested in the first half and double that invested in the same period of 2006.
"We expect an increasing number of private-equity firms and sovereign-wealth funds to acquire minority stakes in public companies as an alternative means of putting capital to work while the auction calendar is quiet," said Jonathan Rowland , European co-head of Citigroup's financial entrepreneurs' group.
Buyout groups believe the trend will continue this year.
U.K. brewer Scottish & Newcastle /zigman2/quotes/207039061/delayed SCTN 0.00% PLC said it had held talks with buyout groups TPG Capital and Blackstone Group last week to help ward off a successful takeover attempt by rivals Carlsberg AS and Heineken NV. S&N's options include selling its estimated $2.6 billion stake in Baltic Beverages Holdings to private equity or buying Carlsberg and Heineken's holding in BBH alongside a buyout group.
But bringing in a private-equity firm is regarded as a strategy more likely to occur after the credit crunch is over as buyout groups look at ways to invest last year's record funds.
"There has been a sell-down in the midcap listed market so there will be demand for defense work as midsize players become targets," said Ken Fritz , head of German mergers and acquisitions at Credit Suisse, about the German market.
Buyout groups in emerging markets such as those in Asia have taken on minority investments as a reaction against protectionist governments wary of foreign investors acquiring domestic companies. U.K.-based Permira Advisors LLP made its debut Chinese investment last October after acquiring a 20% stake in casino operator Galaxy Entertainment Group /zigman2/quotes/202884203/delayed HK:27 +2.25% Ltd. for HK$6.6 billion (US$845 million). The investment is considered a prelude to Permira opening an office in China to target regional transactions.
Minority investing, particularly in public companies, has also been a reaction to the debt-market downturn. Paris-listed private-equity firm Wendel SA has faced market turbulence since its investment in French glass group Saint-Gobain SA.
Wendel, which has an 18% stake in the manufacturer after increasing its holding twice in November, adopted a strategy of acquiring stakes in public companies after the credit crunch. According to a report by broker J.P. Morgan Cazenove, Wendel is facing a potential paper loss of more than €500 million ($730 million) from the fall in Saint-Gobain's share price, which is down by more than 35% since July.
But Wendel Chairman Jean-Bernard Lafonta said the group had a long-term outlook.