So how’s trading in your personal portfolio going this week? Have you found a struggling business offering an increasingly irrelevant product to boost? I take it we’re all too bored and looking for ways to inject some excitement in our lives (I took up amateur radio as a hobby, which also involves spending lots of money on an anachronistic technology).
Anyway, in private equity, things are definitely not overly exuberant.
“The number of SPACs [is] larger than [the] number of companies that deserve to go public,” Mark Stone of Gores Group told Karishma Vanjani. Managers raised $20 billion across 67 blank check companies in January alone, which surpasses all of 2019, Karishma writes.
Gores took United Wholesale Mortgage public recently at a $16 billion value. Read the interview here.
Taxes: I’m hearing in preliminary conversations that 2021 could be ripe for exits — as business owners weigh the threat of tax increases from the new administration, many will decide to take money off the table. That will create a strong pipeline of opportunities up and down the market for PE shops, but also, GPs will be looking for the exits.
“Many people believe legislation will be effective next year,” Citizens’ Kevin Burke told PE Hub when asked about the capital gains changes. “So, firms will accelerate execution of deals in the present tax environment.”
The proposed change by the Biden administration will raise the top corporate tax rate to 28 percent from 21 percent, making dealmaking significantly more expensive.
Additionally, the new administration aims to treat long-term capital gains as regular income, taxing individuals with over $1 million in income at a 37 percent tax rate – up from 20 percent.
Concerns: D. Scott Mackesy, managing partner at Welsh, Carson, Anderson & Stowe, “sat down” virtually with Sarah Pringle to chat about the markets. Mackesy mentioned one thing that keeps him up at night:
I worry about the impact of this work environment on culture at the organization and sourcing and process to invest.
What are the requirements to invest in a company that you haven’t met in person before? That’s something everyone wrestles with a little bit. What risk are you willing to take in terms of the old traditional way of doing business, versus the world that we’re currently in?
We all benefited – including WCAS – from a lot of work we’d done over the last few years in 2020. We had long-established relationships and we were in front of deals working on them long before they were consummated.
If the pandemic persists for a long time, I really worry about new deal activity and relationship development, which is the core of our sourcing in this world.
I personally don’t think it will, but if this were to continue for another year or two years, you’d be challenged with a different environment in terms of your underwriting policies as it relates to new capital deployment.
That’s it for me! As always, don’t hesitate to reach me with questions and comments, tips n’ gossip, feedback or Scotch recommendations at firstname.lastname@example.org, on find me on LinkedIn.
Note to Readers: It’s that time of year … for the 21st time, the editors of PE Hub and Buyouts honor exceptional buyouts with our Deal of the Year Awards.
Winners are chosen in seven categories: Deal of the Year, Large-Market Deal of the Year, Middle-Market Deal of the Year, Small-Market Deal of the Year, Turnaround of the Year, International Deal of the Year, and Secondaries Deal of the Year.
Go here for more information and to read about rules and methodology. Also check out past winners. Last year, New Mountain took the crown with its exit of Equian.
If you have additional questions, email Private Equity Editor Chris Witkowsky at email@example.com.