David French
(Reuters) – Calpine Corp sells for $16.4 billion Constellation energy (NASDAQ: ) should deliver big profits for the power producer’s owners, but it also raised hopes in the private equity world that similar mega-exits could help an industry struggling to return investors’ money.
The trio of investors – Energy Capital Partners (WA:) (ECP), Canadian pension fund CPP Investments and Access Industries – and their limited partners should earn about four times the original outlay, according to people familiar with the matter.
Not only was the Jan. 10 deal the largest transaction in the US energy industry in nearly two decades, but Calpine’s owners are also poised to reward investors who hold significant positions in their portfolios. In ECP’s case, the liquidation of about 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 world of buyouts: Only 27 sales worth more than $10 billion took place between 2020 and 2024, out of nearly 2,900 US companies sold to private equity in that period, according to data provider Dealogic.
Among the few in 2024 were GTCR and Apax (HN:) Partners’ agreement to sell insurance brokerage AssuredPartners to Arthur J Gallagher for $13.45 billion, and Home Depot (NYSE: ) acquired hardware supplier SRS Distribution for $18.25 billion from Leonard Green & Partners and Berkshire Partners.
But such big deals are gaining ground amid the money management industry’s struggle to offload bets made during the boom years of the late 2010s and early this decade, according to several private investors and advisers interviewed by Reuters.
With the overall dealmaking environment expected to be favorable in 2025, industry participants hope that even a small increase in such transactions could help improve capital recycling and deter impatient investors.
“2025 looks like it’s going to have a lot of good conditions,” said John Grand, co-head of the corporate practice at law firm Vinson & Elkins.
“Public stocks seem somewhat overvalued, so people are looking for private deals. Interest rates are falling, and you have political predictability for the next few years.”
GOLDILOCKS DEALS
The optimistic thinking comes after several weak years for exits. Many sales processes have failed because of a disconnect in price expectations between buyers and buyout firms that wanted top dollar for the assets — often purchased during a period of historically low interest rates, when debt was cheap and valuations were soaring.
For the biggest deals, this environment has exacerbated the fact that they are harder to get done in the first place, given the limited universe of buyers. Although an initial public offering (IPO) is an alternative, sellers can exit their investment immediately, rather than having to hold a substantial stake in publicly traded companies for several months or years.
“Strategists only make deals at certain times, so the stars aligned on the Constellation deal, and we will achieve the majority of IPOs, but with reduced execution risk,” said Tyler Reeder, president and managing partner of ECP.
The pressure to reward LPs is more and more pronounced. The ratio of private equity outflows to new investment fell to a record low in 2024, while at the current pace it would take eight years for buyout firms to exit their existing US portfolios, according to data from PitchBook.
In this context, larger deals can be more efficient in returning money compared to the time required to execute multiple smaller investments.
“DPI is a priority for LPs right now, so being able to do a turnkey deal of this size is significant and valued by investors,” said Aaron Cohen, head of financial services and technology at GTCR, of the AssuredPartners deal.
Distribution of paid-in capital (DPI) is a metric that evaluates money managers in terms of how much cash is returned to investors.
GTCR earned about 2.5 times its original investment in 2019 when it agreed to sell AssuredPartners, according to a source familiar with the matter.
While mega-exits are highly regarded, increasing these transactions may not be a panacea for the industry, given that they are complicated to pull off.
“These are Goldilocks transactions,” said Bill Nelson, a partner at law firm A&O Shearman.
