RIYADH — Sovereign funds are investing billions in private acquisition deals, accelerating dealmaking in a year when other funding sources are scarce. KKR & Co., EQT AB, and Brookfield, international private equity firms, have sought funding from wealthy Arab Gulf states recently to finance lucrative deals.
Data from Global SWF reveals that sovereign wealth funds contributed a record US$17.2 billion to joint investments in the first half of this year, a 24 percent increase from last year. While co-investing isn’t unusual, the financial contributions of these state-backed investors have increased significantly as private acquisition debt becomes costlier.
In EQT’s $4.8 billion acquisition of Dechra Pharmaceuticals Plc, the Abu Dhabi Investment Authority is set to contribute at least $1.3 billion. Middle Eastern investors, including Abu Dhabi’s Mubadala Investment Company and ADQ Holding Company, plan to invest roughly $1.5 billion in Brookfield’s $2.8 billion acquisition of Network International Holdings Plc, according to last month’s regulatory filings.
Bloomberg News reported KKR’s interest in drawing the Abu Dhabi Investment Authority into its $25 billion bid for Telecom Italia’s landline network. “Sovereign wealth funds are often swift, flexible, and capital-rich, making them valuable assets,” Elizabeth Todd, a Robes & Gray partner, commented. “These funds aren’t restricted to minor stakes when they find appealing assets; they can exert effective governance,” she added.
Despite tightening funding markets, a senior executive at a major sovereign fund stated they are urging private equity firms to pursue larger acquisitions. He expressed readiness to support larger deals and reduce the acquiring company’s burden, indicating their fund’s interest in participating in more deals to allocate more of its portfolio to private equity firms.
Sovereign wealth funds invested over US$25 billion in major acquisitions in March alone. GIC and Singapore-owned Temasek Holdings invested $1.8 billion in Brookfield’s acquisition of Origin Energy Ltd., totaling $12.7 billion. The Abu Dhabi Investment Authority also participated in Blackstone Inc.’s $4.6 billion purchase of Cvent Holding Corp. and Apollo Global Management Inc.’s $8.1 billion acquisition of Univar Solutions Inc.
Higher interest rates force private equity firms to reduce deal-funding loans, lowering their returns. “Bank financing is less accessible, and co-investment could help bridge the gap,” Todd explained. As other funding sources decline, sovereign funds are seeking more deals and demand guaranteed deal flow in exchange for additional capital for new funds.
Efforts are underway to support this trend, like strengthening Mubadala Investment Company’s asset management arm, Mubadala Capital, which manages around $20 billion. Mubadala Capital expanded its operations by acquiring a majority stake in the US-based Fortress Investment Group.
According to James Burdett, a Baker & McKenzie partner, a substantial portion of SWF money also goes into private equity acquisitions of unlisted companies. He noted, “We’ve seen large deals in private equity acquisitions involving Middle Eastern sovereign funds and other institutional investors. In some cases, sovereign investors have pursued more active investment strategies, similar to those employed by North American pension funds.”