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Donald Trump’s tariffs are forced to suspend trading on private equity groups and focus on managing existing portfolio companies, in a tough turnaround in the early expectations of activities in the new administration.
One of the acquisition executives at top US companies told the Financial Times that economic uncertainty means transactions are suspended as the value of the company has become difficult.
“There’s a pause. It’s difficult to set pricing,” they said. “People are worried that there will be a recession.”
“Private equity is really risky for a while,” said the head of a large UK company. “This way, we’re going to focus on what we already have.”
The comment shows a shift from the industry’s previous stance of unleashing a wave of mergers and acquisitions two years after President Trump was forced to delay sales plans for managers.
Companies were being pressured by investors to start selling aging companies and return cash.
The private equity group’s advisor told the FT, “Most of these guys are just pen down, so please calm this down,” in the wake of Trump’s tariff announcement.
Several late transactions have been signed over the past two weeks, including Silver Lake’s acquisition of a majority stake in chip designer Altera and the purchase of KKR’s E45 moisturizer maker Karo Healthcare.
But others have also been postponed, including the £600 million auction by portfolio company Audrey Travel’s British company 3I, which was suspended in the weeks leading up to Trump’s so-called release date.
The deadline for the final bid for Boeing’s navigation unit has also been pushed back several times, but the £4 billion sale by the buy-in group Apax, the insurance group PIB, took longer than expected.
Deal makers are closely watching the progress of multi-billion dollar carve-outs in their portfolios of home care brands, which were expected to acquire $4 billion to $5 billion offers from private equity bidders.
However, last week at least one company cut its offer between $3 billion and $4 billion, raising doubts about whether the deal would go any further.
“The transaction is finished, but people will be a little more careful,” said the top buyout executive involved in the two ongoing processes.
Instead, the acquisition group is seeking to assess the potential impact of tariffs and broader economic hardships on its vast portfolio.
Wolf-Henning Scheider, head of private equity at Swiss Firm Partners Group, said his team is working with portfolio companies most exposed to Chinese tariffs to determine how they can rerout their supply chains.
“We have already taken some steps in the last six to 12 months to prepare us to shift as much as possible (the supply chain),” he said.
While most of the companies had almost modest tariff exposure, he said the partners were trying to model the impact of “additional obstacles in the market.”
Even before the current market turmoil, companies had developed many strategies to generate cash from assets that could not be sold at a sufficiently attractive valuation.
Some companies borrowed money for fund investments to pay dividends using so-called net asset value loans. However, investor resistance meant that acquisition managers had to cut down on practice these days.
The industry has become increasingly a continuous vehicle as a mechanism for releasing funds. Private equity companies use this structure to sell their assets to themselves, while introducing new investors and allowing them to cash out their first backers.
Apax, 3i, Silver Lake and Boeing declined to comment. Reckitt said it is working on the strategy and the separation process is underway.
Additional Reports by Madeleine Speed
