Deep-pocketed sovereign funds are deploying billions of dollars to get private equity takeovers across the line, helping grease the wheels of dealmaking in a year when other funding sources are drying up.
KKR & Co., EQT AB and Brookfield all turned to wealthy Persian Gulf countries to stump up a lot of the money for big-ticket deals in recent weeks. Sovereign wealth funds spent a record $17.2 billion on such co-investments in the first half, up 24% from the same period last year, according to data provider Global SWF.
While teaming up on deals isn’t unusual, the amount of equity these state-backed investors are providing has jumped as buyout firms find debt more expensive. The Abu Dhabi Investment Authority is contributing at least £1 billion ($1.3 billion) for EQT’s £4.5 billion takeover of veterinary drugmaker Dechra Pharmaceuticals Plc announced in June.
Middle East investors including sovereign funds Mubadala Investment Co. and ADQ are fronting about £1.2 billion for Brookfield’s £2.2 billion takeover of payments processor Network International Holdings Plc, according to an analysis of regulatory filings last month. KKR is also trying to rope in ADIA for its $25 billion bid for Telecom Italia SpA’s landline network, Bloomberg News reported last week.
“SWFs can often move very quickly, can be flexible and have large amounts of capital — they can be an extremely useful capital provider,” said Elizabeth Todd, a partner at law firm Ropes & Gray. “Where they find an asset they like, they do not feel limited to small minority investments with passive governance rights.”
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