Citigroup May Ask $10 billion for Private Equity Arm
The reason for the sale is simple. Citigroup is still trying to rebuild its troubled balance sheet and the $10 billion would come in handy. Of course, getting $10 billion may be easier said than done.The private equity business is not as attractive as it was in 2006, 2007, and early 2008, when firms in the industry were making huge returns. In that golden age, private equity operations were able to borrow billions of dollars from banks to close deals to buy companies like HCA. Merrill Lynch and Bain Capital bought the hospital company for $33 billion in 2006. Another of the largest deals from the period was the Thomas H. Lee and Bain buyout of broadcaster Clear Channel for $23 billion in July 2008. By the middle of last year, Clear Channel was facing bankruptcy and its entire debt had to be restructured. The firm had to raise capital at high interest rates to repay debt
Aside from lack of access to bank capital to close deals, private equity firms are faced with the poor IPO market. PR companies and venture capital firms had relied on selling companies that they controlled in the public markets as a way to make their assets liquid and recoup their investments and a good return. The choppy stock markets have made that much more difficult to do.
Citi may eventually sell its private equity arm. The price now is $10 billion. Fetching that amount could be difficult.