What's going on?
With $2.5 trillion of “dry powder” sitting in private equity firms’ coffers, it was perhaps only a matter of time before one of the biggest spent $70 billion trying to soothe its sore spots…
What does this mean?
Back in 2015, private equity firm KKR spent $640 million on a majority stake in Trainline – before bagging a profit from the British ticketing company’s initial public offering in June, which valued it at $2.5 billion. And on Tuesday, KKR sold off its remaining Trainline shares, freeing up some cash to use elsewhere.
“Elsewhere” might turn out to be Anglo-American pharmacy chain Walgreens Boots Alliance. The public company has reportedly been looking for a private buyer, and it’s attracted a $70 billion offer from KKR. If it goes ahead, it’ll be the biggest private equity deal ever.
Why should I care?
For markets: Give with one hand, take with the other.
As the healthcare industry changes – and as Amazon’s burgeoning health business threatens the established players – Walgreens might be better off away from the quarterly scrutiny of public investors. But in the meantime, those investors stand to secure a tidy profit from the KKR agreement. The latter’s offer is about 30% higher than Walgreens’ current price, and it’ll likely hope to sell a healthier and more expensive company back to public investors in the future – just like it did with Trainline.
The bigger picture: Poor rich private equity firms.
One reason private equity firms have so much cash to spare is that they’ve found spending it isn’t as easy as it used to be. In July, for example, two private equity giants made a joint $4 billion offer to purchase German lighting manufacturer Osram. But Osram’s instead likely to accept a slightly higher rival offer from a buyer that’s promised to stave off job cuts until 2022 – something private equity firms have a reputation for decidedly not doing.