EQT Sees Exits Slowing With Near Shutdown of Debt, IPO Markets

(Bloomberg) -- Swedish private equity firm EQT AB is preparing for a slowdown in investment exits as banks turn more circumspect about deal financing and initial public offerings grind to a halt. 

“The IPO market is closed, the high yield market is barely open — it’s pretty closed off right now,” Chief Executive Officer Christian Sinding said in an interview after the company reported first-quarter results. He added that the second quarter will be a “bit slower.”

Amid the volatility across risk assets, banks are increasingly skittish about extending their balance sheets for leveraged deals. Staple financing for EQT’s Karo Healthcare fell apart days before binding bids were due and KKR & Co. had to arrange its own financing for the transaction, Bloomberg News reported last week.

While the market for new listings has stumbled most recently on the back of US trade policies, dealmaking more broadly has been hobbled for much of the past 18 months due to valuation gaps for portfolio companies.

“Buyers and sellers were finding each other in the first quarter, but the bid-ask spread is now widening,” Sinding said.

That runs counter to the support for merger and acquisitions that many financiers had initially predicted from President Donald Trump’s administration. Sinding himself said earlier this year that his firm planned to take advantage of a healthy stock market to list more assets. 

Still, EQT hopes to tap the IPO market “later this year, when the environment is less volatile and more predictable,” the CEO said.

Sinding also noted that with €50 billion ($57 billion) of dry powder, the firm is looking to deploy a Covid-era playbook to get deals done even in an uncertain market.

Asia Fund

EQT shares were down 4.5% at 5 p.m. Stockholm time on Wednesday following the firm’s cautious guidance on realizing returns for its portfolio companies. 

The private equity firm said in its quarterly report that it “expects a material slow down in exit activity given the recent deterioration in market conditions and elevated uncertainty across global markets.”

That said, the investment firm has secured a large amount of funding in recent weeks, raising €21.5 billion ($23.2 billion) for its latest infrastructure fund last month. 

In addition, EQT’s latest pan-Asia private equity fund — the BPEA Private Equity Fund IX — received more than $10 billion in investor commitments, putting it on track to reach its fundraising goal despite the volatility, according to a separate statement on Wednesday. That fund could hit its $12.5 billion target by the summer, with the so-called hard cap of $14.5 billion slated for later this year. 

Conditions for raising funds in private capital have become increasingly bifurcated as investors opt for either large asset managers with a range of strategies or specialist firms focused on niche markets. Some are doubling down on their relationships with top performers and cutting down on others as they seek to mitigate a slowdown in returns.

Elsewhere, investment firm Ardian SAS delayed a planned fundraising for its multi-billion flagship fund amid a restructuring of its buyout team, Bloomberg News reported last week. European mid-market buyout firm Equistone Partners Europe stopped raising money for a fund after failing to reach its initial goal of around €2.5 billion ($2.8 billion), Bloomberg News reported in January.

EQT meanwhile said it had taken about eight months to near the full target for the Asian private equity fund, compared to the 24-month average cycle for the industry.

The firm’s asset under management totaled €142 billion at the end of the first-quarter period, beating the average analyst estimates. The investment group is also planning to launch a US evergreen product during the summer using two global distributors.

--With assistance from Cathy Chan.

(Updates throughout with EQT CEO comment.)

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