Ross Sale to Amvescap: Sign of Top in Private Equity?

The knee-jerk contrarian in us would normally take the news that Wilbur L. Ross, Jr. is selling his eponymous buyout firm to Amvescap (AVZ) as a sign of a top for private equity. After a moment’s pause there may be more going on here than a simple signpost of market excess.

With the near simultaneous news that hospital operator HCA Inc. (HCA) is going private in a private equity led deal with an enterprise value in excess of $30 billion. DealBook adds some additional color on the deal. We had noted in an earlier post that these large-scale deals may act as a catalyst in boosting the relative performance of megacaps.

David Leonhardt in the New York Times has some interesting quotes from Ross that illustrates his reasoning for the deal and the state of the private equity market. One reason for the deal was to bulk up the firm, presumably to compete for larger deals,

“We’re now in era of megafunds,” Mr. Ross said yesterday in a telephone interview. “In a different, earlier period, $3.5 billion, which is about what we have under management, seemed like a lot. Nowadays, it’s not.”

In our discussions surrounding the public offering of a KKR deal in Europe it may be only a matter of time before more private equity firms tap the public market for deeper pools of capital.

Mr. Ross predicted yesterday that the Amvescap deal would be a landmark that would have “quite a few echoes.”

He added, “I believe we’re going to start to see a trend toward the institutionalization of the private-equity community.” Some firms will be bought out, Mr. Ross said, and others will go public to gain access to more capital.

Joe Weisenthal at DealBreaker.com also highlights the Ross deal and believes that the timing will allow the now larger firm to be a more effective player in the market for distressed assets. In short it is worth noting the actions of smart money players, like Ross, especially when they telegraph their views to the public.

As we noted at the outset most news items can be viewed in any number of ways. A superficial take on the Ross news could lead you to believe that private equity has topped out. While this jibes with the talk about the inflated state of the private equity market there may still be some gas left in the PE tank. However readers should note that the nature of the industry is changing with an emphasis on institutionalized firms that can realistically undertake multi-billion dollar deals.