Blackstone sells Blackstone | USAEMALL.com

One thing to start: WhatsApp won a $168mn jury verdict in a case against NSO Group, the Israeli maker of Pegasus spyware, for exploiting a weakness in the encrypted messaging platform and selling it to clients who used it to surveil journalists, activists and political dissidents.

And another thing: Slaughter and May has said it will not raise salaries for its most junior lawyers this spring, in a sign that a fierce war for legal talent in the City of London may be cooling for the first time since the Covid-19 pandemic.

In today’s newsletter:

• Blackstone cuts a sweet deal

• DoorDash swallows Deliveroo

• Private equity’s big defence push

A Blackstone dash for cash

Everyone on Wall Street is talking about secondaries. This market for selling second-hand fund stakes is red hot as investors in private funds engineer their own liquidity. 

Blackstone, the world’s largest alternative asset manager, has a formidable secondaries business called Strategic Partners that manages almost $90bn.

Yet, it’s rare to see Blackstone itself use second-hand stake markets to conjure its own liquidity. 

But the $1.2tn private capital titan has resorted to such manoeuvres for a fund recently highlighted by DD’s Antoine Gara. 

On Monday, the FT reported that Blackstone’s evergreen European property fund BEPIF had struck a special guarantee of returns to attract a €1bn investment from a large Asian investor.

It used the cash in March to buy a 50 per cent interest in the retail spaces in 5,000 UK railway arches, and to bolster the fund’s liquidity.

Blackstone pledged €200mn of its own shares in BEPIF against a 9.25 per cent annual return target, whereby the New York-based investment group risks handing over its shares to the Asian investor if its returns fall short. 

It’s the second such backstop Blackstone has resorted to over the past three years to draw a large infusion of capital into one of its perennial property vehicles capping withdrawals amid heavy redemptions.

In late 2022 and early 2023, Blackstone attracted a $4.5bn investment from the University of California into its flagship US property fund, Breit, shoring up its liquidity as it faced a torrent of redemptions.

Blackstone’s more recent BEPIF special deal is being presented as a solid trade-off. 

It gives the €625mn fund, which has a queue of more than €100mn in outstanding redemption requests, cash to invest in European property markets deemed by Blackstone to present bargains — like its railway arches.

Yet Blackstone was already resorting to unusual measures to stabilise BEPIF. Last year, it injected €100mn of its own cash into BEPIF to shore up its liquidity.

BEPIF has also turned to secondaries markets to drum up cash. The fund was a large shareholder in BPPE, another evergreen Blackstone property fund in Europe.

BPPE offers a “country club” style of liquidity where redemptions are met at Blackstone’s discretion, generally when new investment comes in. 

But BPPE itself has a queue of unfilled redemption requests. BEPIF, looking for cash to meet its own redemptions, was forced to find alternative liquidity.

So it turned to the aforementioned secondaries markets. BEPIF dumped about €75mn of its BPPE shares using secondaries over the past 15 months and realised a €2mn loss, its corporate filings show.

In other words, Blackstone has been selling Blackstone. 

London bids farewell to Deliveroo

Its 2021 IPO at the height of the pandemic-era dealmaking boom was labelled the worst in London’s history.

Now — just four years later — UK food delivery app Deliveroo has bowed out of public markets.

It was put out of its misery by American rival DoorDash, which gobbled Deliveroo up for £2.9bn — less than half of its IPO valuation.

The sale follows Thoma Bravo’s buyout of London-listed cyber security company Darktrace last year. It highlights the difficulty that fast-growing tech companies have had in attracting investment in the UK.

It’s a story that can be told through the two companies involved in Tuesday’s deal.

Both Deliveroo and DoorDash launched in 2013, a few months apart — one in the US, one in the UK.

Both expanded rapidly and their growth was boosted by the onset of the Covid-19 pandemic, as people trapped indoors ordered takeaway meals en masse.

As the end of 2020 approached, both geared up to go public, seeking to take advantage of rock-bottom interest rates and an IPO frenzy.

DoorDash went first.

Its New York IPO was a blockbuster success — shares rose 86 per cent on the first day of trading and it’s been on the up ever since.

Deliveroo’s listing in London just three months later was, by contrast, was a disaster. By the end of its first day on the market, the company’s stock had sunk by a quarter, shedding more than £2bn in market value.

One banker told the FT at the time that it was “an absolute car crash”. People involved in the listing blamed short sellers, a poor roadshow and a rebellion by large British fund managers against its dual-class share structure.

Rishi Sunak — then chancellor — put on a brave face. After all, Facebook, which had a rough ride after its 2012 IPO, ultimately thrived.

“Share prices go up, share prices go down,” he said at the time.

But Deliveroo’s stock never recovered, falling more in recent years.

In the meantime, DoorDash’s valuation has more than doubled, and its market cap was nearly 30 times Deliveroo’s entering Tuesday.

Now the recriminations that began after Deliveroo’s IPO have resurfaced.

The takeaway for one early Deliveroo investor, however, was simple.

“With the benefit of hindsight, it should have listed in the US.”  

Private equity’s defence play

It’s not often that defence companies find themselves on the right side of public opinion.

Some investors, particularly in Europe, have been wary of backing weapons manufacturers because of the risk of running afoul of environmental, social and governance rules.

But this is all changing as part of the tectonic geopolitical shifts under way in Europe.

German lawmakers’ vote for a historic boost to defence spending was just the start.

Private equity has warmed to the idea of making big bets on defence, as Europe faces off against Russia on its eastern flank and support from the US wanes.

The “mood is changing with investors, probably also with regulators, probably also with governments”, said Thomas Friedberger, deputy chief executive at Tikehau Capital, adding that “there won’t be any sustainable economic development without defence”.

Tikehau is among a number of buyout and venture capital firms positioning themselves to take advantage of new investor interest in the defence sector.

The firms argue they can play a crucial role in re-arming Europe by channelling much-needed capital to fill what they say will be a gap between how much money governments are willing to provide, and the scale of the spending that’s needed.

James Dawson, a partner at boutique investment bank Gleacher Shacklock, said “more of the substantial PE firms are interested in defence now than they have been historically”.

Investment in European start-ups working on defence and related technologies jumped 24 per cent last year, as investor bought into companies such as artificial intelligence defence group Helsing and drone maker Tekever.

The defence bump defied a broader downturn in European VC funding. It’s part of a bigger shift that may help European investment titans to win investment that previously would have gone to the US.

Job moves

• L Catterton has named Nikhil Thukral as its new president. He was previously managing partner at the firm.

• Latham & Watkins has hired David Brenneman as a partner in the firm’s antitrust and competition practice in Washington. He joins from Morgan Lewis, where he was a partner.

• Kirkland & Ellis has appointed Thibaut Partsch as a partner in its investment funds group in New York. He joins from Elvinger Hoss Prussen, where he specialised in alternative investments.

Smart reads

Free will For the past decade, a $20bn manufacturer has shaped its employees actions not by rules or bosses, but by an internal currency, the FT writes. The results have been mixed.

More rules Bank bosses aren’t exactly known for their love of regulation, but Barclays’ chief executive has gone public to voice his support for precisely that. The FT’s Patrick Jenkins explores why.

Temp homes New York’s expensive rental market has spawned a shadow economy of tiny rentals for migrant workers, the New Yorker writes.

News round-up

US and China to launch formal trade talks (FT)

Czech court halts $18bn nuclear reactor deal after rival complaint (FT)

Kingsmill owner in merger talks with rival bread maker Hovis (FT)

Donald Trump’s attack on green energy could hurt US in AI race, data centres warn (FT)

Capital flies into Europe’s defence drone start-ups (FT)

Ather’s muted debut bodes ill for Indian e-scooter and IPO markets (FT)

Europe’s last maker of key antibiotics ingredients shuts biggest domestic factory (FT)

UK closes in on US trade pact with lower tariff quotas for cars and steel (FT)

TalkTalk sheds customers as indebted telecoms group battles altnets (FT)