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Less Competition?

I’ve been trying to get my head around something Tony James said during Monday’s Blackstone earnings call. He argued that the past few weeks have caused a PE market shakeout, which has knocked out a variety of peripheral players. The result, he said, would be less competition for deals. 

Sorry, but it just doesn’t make sense. Even if some periphery players are gone, PE firms including Blackstone have lost their primary pricing advantage against strategics: Cheap debt. Doesn’t that mean greater competition? Moreover, firms like Blackstone already are signaling that they’ll look closer at smaller deals best defined as large or upper-middle market. Ok, but those areas are far more saturated with equity sponsors than is the mega-market. Again, more competition.

I’m still bullish on deals picking back up by late September, but with more competition – not less.