By David French
(Reuters) - Calpine Corp's $16.4 billion sale to Constellation Energy is set to generate a handsome windfall for the power producer's owners, but has also stoked hopes within the private equity world that similar mega-exits may help an industry struggling to return investor cash.
The trio of investors - Energy Capital Partners (ECP), Canadian pension fund CPP Investments and Access Industries - and their limited partners are expected to pocket a return of around four times their original outlay, according to people familiar with the matter.
Not only was the Jan. 10 agreement the largest transaction in the U.S. power industry in nearly two decades, but the Calpine owners are also set to reward investors holding significant positions in their portfolios. In the case of ECP, liquidating around a quarter of its $5 billion third flagship fund, as well as stakes in other ECP vehicles, two of the sources said.
This type of mega-exit is rare in the buyouts world: only 27 sales worth more than $10 billion were struck between 2020 and 2024, out of almost 2,900 U.S. companies divested by private equity in the time period, according to data provider Dealogic.
Among the few in 2024 were GTCR and Apax Partners' deal to sell insurance brokerage AssuredPartners to Arthur J Gallagher for $13.45 billion, and Home Depot's $18.25 billion purchase of hardware supplier SRS Distribution from Leonard Green & Partners and Berkshire Partners.
Such large deals are gaining greater significance, though, amid the money management industry's struggles to offload bets made during the boom years of the late-2010s and into the early part of this decade, according to several private equity investors and advisers interviewed by Reuters.
With the overall dealmaking environment expected to be favorable in 2025, industry participants are hoping even a small increase in such transactions could help improve the recycling of capital and head off impatient investors.
"It's looking like 2025 is going to have a lot of the right conditions," said John Grand, co-head of the corporate practice at law firm Vinson & Elkins.
"Public equities feel like they are somewhat overvalued, so people are looking for private deals. Interest rates are coming down, and you also have political predictability for the next few years."
GOLDILOCKS DEALS
The upbeat thinking comes after a lean couple of years for exits. Many sale processes failed amid a disconnect in price expectations between buyers and buyout firms wanting top dollar for assets - often bought during the period of historically low interest rates, when debt was cheap and valuations soared.