The private equity arm of French insurance group Axa has raised $8 billion (£5.1bn) from investors – more than double the amount it was originally seeking – as it looks to buy assets from banks that are shoring up their capital reserves.
New rules, known as Basel III, make it more expensive for banks to hold risky assets, and they need to free up capital to support their core lending and investment banking businesses.
Axa Private Equity had initially been looking to raise $3.5bn for its secondary fund of funds, but ended up raising $7.1bn. An additional $900 million will go towards its primary fund of funds, the group said.
Demand came from investors in Asia, the Middle East and North America, it said.
Banks are trying to offload private equity assets they spent billions on before the financial crisis, causing a flurry of so-called secondary sales – Axa said it expects between $40bn and $50bn of bank assets to come up for sale as a result.
It said: “AXA Private Equity predicts a significant increase in activity in the secondary market over the next two years.”
Secondary buy-outs are an increasingly important source of income for private equity firms, which tend to buy firms with large amounts of debt financing. They then aggressively cut costs, improve performance and sell it on for a profit, usually through a stock market flotation.
However, yesterday it emerged that the owners of German chemical company Evonik had scrapped plans for what could have been Europe’s biggest flotation in more than a year.
State-owned RAG, which controls 75 per cent of Evonik, said that uncertain market conditions caused by the ongoing eurozone crisis meant it had not been able to achieve a high enough price for the business. Private equity firm CVC holds the remaining 25 per cent.
Axa Private Equity’s secondaries fund takes investment portfolios off the hands of banks, and last year it agreed to buy a portfolio of around £460 million of private equity fund interests from Barclays.
Its fundraising success follows US group Lexington Capital, which last year raised $7bn in what was then the largest ever fund raised by a secondaries specialist.
Deal-making in the private equity industry – once home to transactions such as KKR’s £11bn acquisition of Alliance Boots, and Terra Firma’s £4bn purchase of EMI – has eased since the onset of the financial crisis.
With bank lending for the debt-heavy leveraged buy-outs drying up, many firms have been buying companies from rivals.
Two private equity groups are believed to be in the hunt for Iglo Group, the parent company of frozen food brand Birds Eye, which is owned by private equity group Permira.
Reports at the weekend said the owner of Boots and Pets at Home is in early-stage talks over a possible £8bn takeover of Orange and T-Mobile group Everything Everywhere.
Private equity house KKR is said to be holding detailed discussions with Everything’s parent companies, Deutsche Telekom and France Telecom, in the hope of winning approval for its debt-backed bid.
