As the parade of big private equity deals marches on, swallowing up massive firms in some of the biggest deals in history, one industry remained conspicuously absent from the party: financial services. Stringent regulation, the leverage needed to acquire the asset-heavy companies, and the inherent risk associated with handling other people’s money have kept most buyout attempts at arm’s length.
In April Kohlberg Kravis Roberts was one of the first to enter the fray with its planned $29 billion buyout of payment processor First Data. The Carlyle Group, which has raised more capital over the last five years than any other private equity firm, announced earlier this month that it has formed a new unit to sniff out potential acquisition targets. After avoiding the industry for several years, Madison Dearborn Partners stated that one of the goals of its most recent buyout fund was to invest in financial services. Indeed, on Wednesday it became the first general private equity house to foray into retail money management when it led an investor group that will pay more than $5 billion for Nuveen Investments, which specializes in fixed-income and exchange-traded funds. (Nuveen can listen to competing offers until July 19.)
In the copy-cat world of private equity, where firms and their managers try to one-up one another in the pursuit of bigger and bigger deals — or to simply ape others’ successes — expect more buyouts of financial services firms to come. They may shy away from banks and other lenders because of credit concerns (or not), but don’t be surprised if private equity companies start plucking other financial service providers, especially other transaction processors and fund managers, that are ripe for takeover.
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