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3 Companies That Are Growing as Private Equity Booms

By Courtney Carlsen – Updated Aug 13, 2021 at 10:58AM

Key Points

  • Strong M&A activity has been a hallmark of strong private equity dealmaking.
  • Private equity firms have seen strong earnings performance as valuations continue to recover.
  • Firms are also attracting a lot of capital to spend on future deals.

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Private equity firms just finished an active first six months of 2021 and are well positioned for the future, too.

Private equity firms just finished their most active first half in 40 years, as buyout groups announced over 6,000 deals totaling more than $500 billion, according to data by Refinitiv (as reported by the Financial Times). Mergers and acquisitions (M&A) activity reached all-time highs, as deals were up 129% since last year to $2.8 billion. Total M&A fees hit $17.9 billion in the first half of the year, the highest since 2000. The active M&A market has been driven in large part by active private equity firms, which have raised capital at their fastest pace in years.

As the world gradually emerges from the coronavirus pandemic, the strength of fundraising, along with strong investment performance, has helped boost private equity firms Blackstone (BX 0.14%), KKR (KKR -0.57%), and Carlyle Group (CG).

Strong quarterly growth for private equity firms, with more to come

The second quarter was a strong one for private equity firms. Blackstone saw revenue grow 110% from last year to $5.3 billion, which flowed to the bottom line as diluted earnings per share (EPS) were up 125% from last year to $1.82. This growth was boosted by positive performance across its investments, with strong growth coming from real estate and private equity investments.  

KKR is another private equity firm that posted strong growth. Asset management revenue was up 65% from last year to $2.2 billion, while investment income was up 119% from last year to nearly $3.5 billion. Meanwhile, Carlyle Group is another firm with a stellar quarter. Revenue was up 139% from last year to $2.7 billion, driving net income growth of 363% to $946 million in the quarter. The firm also benefited from strong investment performance through the first half of the year.  

This solid growth is a great sign for investors. However, it's not over as many of these firms are still working to put the massive cash piles to work, which should lift future earnings growth.

Business people shake hands during a board meeting.

Image source: Getty Images.

Private equity funds are flush with cash

Private equity firms came into 2020 sitting on lots of "dry powder" -- cash or other liquid assets that they are ready to deploy when the time is right. Sometime firms can build up big cash balances waiting for the right opportunity, and in 2019 these firms were sitting on $2.5 trillion, according to Bain & Co. Last year, the pandemic postponed the deployment of this cash due to the uncertainty around the pandemic, and the amount grew to $2.9 trillion. Considering private equity firms have spent $547 billion on deals this year, they have plenty of ammo left.   

These firms have also been raising lots of capital. Blackstone saw assets under management (AUM) grow 21% from last year to $684 billion by the end of Q2. The company was helped by a deal to become American International Group's (AIG) exclusive external manager for a big portion of its life and retirement portfolio. Under the terms of the deal, Blackstone will receive $50 billion in AUM, which are expected to grow to $92 billion over time.  CEO Stephen Schwarzman says this move, along with others, has set it up for long-term growth. The AIG deal helps accelerate growth into the $30 trillion global insurance market. The company is also continuing to create products for the retail channel, an $80 trillion addressable market. With the retail and insurance channels nearly double the size of its institutional channel, which is where Blackstone's historical focus has been, it's no wonder Schwarzman sees strong growth potential. 

In Q2, KKR raised $59 billion in new capital after raising $44 billion in new capital in all of 2020. KKR says that 98% of its new capital has a contractual life of over eight years. With a blended fee just under 1%, along with incentive-based fees, this capital should support the firm going forward.  

Carlyle Group saw strong fundraising too, raising $18.2 billion in the first six months of 2021. The firm said this was ahead of its fundraising goal of $130 billion by the end of 2024. With such high levels of fundraising, private equity firms are ready to spend on buyouts.  

Strong deal activity will continue in 2021, and long-term growth prospects are bright too

For the rest of this year, management at Carlyle Group expects to see active markets in private equity. The firm has deployed capital of $26 billion in the past 12 months -- its fastest pace in years. The company expects the trend to continue, with big deals coming in the healthcare, technology, and consumer sectors.  

KKR expects strong trends too, noting a robust fundraising pipeline across strategies and geographies. The company expects the next 12 months will be stellar as well. Blackstone Group expects to raise $4 billion per month on its real estate products while strong demand for these products continues. Other areas in which Blackstone sees considerable promise include the online revolution, life sciences, sustainable energy, housing-shortage solutions, global travel recovery, and the rise of the middle class in China and India.

With a strong economic backdrop coupled with Federal Reserve support and strong fiscal spending, private equity firms should continue to perform well as the year goes on. There is some speculation that increasing capital gains taxes and other regulations could accelerate deals through the end of 2021, something investors should keep a close eye on. Long-term growth prospects are bright as well for many of these private equity funds as they continue to raise money to put to work that will generate fees for years to come.

Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool recommends KKR. The Motley Fool has a disclosure policy.

Stocks Mentioned

Carlyle Group Stock Quote
Carlyle Group
American International Group Stock Quote
American International Group
$62.75 (-0.56%) $0.35
Kkr & Stock Quote
Kkr &
$52.25 (-0.57%) $0.30
Blackstone Stock Quote
$85.16 (0.14%) $0.12

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