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Horbach: Carlyle eyes carve-outs in pricey deal environment

  • Carlyle running into 10.5x multiples on deals
  • Focus on carve-outs rather than getting outbid on processes
  • Carve-out portfolio includes $7.4 billion Veritas deal

The co-head of Carlyle Group’s U.S. buyouts group, Sandra Horbach, says the firm is frequently running into double-digit multiples as it competes for deals.

Horbach spoke during a keynote interview at Harvard Business School’s recent private equity and venture capital conference.

“The average multiple on the deals [where] we compete is 10.5x, which is higher than they were right before the recession,” she said, adding that the firm is avoiding processes where it could get out outbid.

Hamilton Lane reported seeing similar large-cap buyout multiples in a presentation for Teachers’ Retirement System of Louisiana in August. Data provider Pitchbook pegged the median M&A multiple at 9.2x last year, roughly 26 percent higher than in 2010.

The already competitive leveraged-buyout market has become increasingly difficult given dry-powder levels. PE firms had $820 billion of unspent committed capital at year-end, 8 percent more than the $755 billion they had at the end of 2015, according to Preqin. Furthermore, ready access to leverage provides more fuel to an already pricey deal environment, she said.

“We are truly in a kind and generous debt environment, even today,” Horbach said.

The firm has instead focused its efforts on corporate carve-outs, which tend to require more complex financing and operational follow-through than traditional management buyouts, Horbach said. Carlyle’s portfolio of carve-outs includes acquisitions from public companies like Johnson & Johnson and DuPont.

“We have to have a value-creation strategy as to how you’re going to make the company better,” Horbach said at the conference. “It’s all about value creation. And we think the bigger firms have the ability to do that on a more consistent basis.”

Last year, Carlyle acquired information-management-system provider Veritas from Symantec for $7.4 billion. The firm brought in tech executives Bill Coleman and Bill Krause to lead Veritas as a stand-alone company.

Carlyle also includes its acquisition of asset-management firm TCW from Société Générale in 2013 among its portfolio of carve-outs. TCW’s assets under management grew 60 percent in the first two years of Carlyle’s ownership, a video on the firm’s website shows.

Founded 1987, Carlyle has $169 billion of AUM across four business segments. Its PE platform has $55 billion of assets under management.

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Photo of Sandra Horbach courtesy Carlyle Group.