As Carlyle Group stock lags, it could be an acquisition target

Carlyle Group (NYSE: CG) stock price is doing worse than its giant private equity peers like Blackstone, KKR, and Apollo Global Management. Data shows that the stock has risen by just 20% in the past 12 months while the other three have jumped by more than 40%.

Carlyle vs Blackstone vs KKR vs Apollo stocks

Harvey Schwarz is not delivering

Carlyle Group, one of the biggest private equity companies in the world, is not doing well a year after introducing a new CEO. Harvey Schwarz joined the firm in February 2023 to help it recover from a deep slump. He came from Goldman Sachs, where he rose to the Co-Chief Operating Officer among other roles.

Carlyle’s stock has done well since he came in but that performance has been weaker than its closest peers. Apollo Global has jumped by over 60% while Blackstone and KKR have jumped by 43% and 50%, respectively.

At the same time, Carlyle has not yet closed its valuation gap to these other competitors. It has a forward PE ratio of 12.28 compared to Blackstone’s 30 and KKR’s 19. Brookfield Asset Management has a forward PE multiple of 27. 

Analysts believe that Carlyle Group’s performance is mostly because most of its business is in the private equity business. In most cases, the PE sector is a bit difficult in a period of high-interest rates. Deal-making tends to be slow while the valuation of many constituent companies drops. Carlyle has $161 billion in assets under management in its PE business.

The other companies have mostly mastered the private credit industry, which is doing well. Carlyle has $150 billion in private credit while Blackstone has $297 billion and $39 billion in dry powder. 

Apollo, on the other hand, is mostly built about private credit and has more than $443 billion in AUM. Apollo benefits from its Athene asset, which provides it with permanent capital. KKR has $202 billion in its credit business. In a recent note, analysts at Evercore said this about Carlyle:

“The private equity industry continues to face headwinds with fundraising challenges and slow deal activity. Fundraising for private equity has been tough due to LPs constrained on their PE allocation limits and cashflow constraints.”

What next for Carlyle stock?

I believe that Carlyle is in a more difficult place than its peer companies. Its assets are growing at a slower pace and has little exposure in key growth areas like infrastructure and private credit. I therefore expect that its turnaround will take time.

As such, I suspect that a clearer path for Carlyle will be an acquisition by one of the bigger companies. Besides, there are signs that demand for private equity deals are still there. Just this week, General Atlantic acquired Actis, a UK company that focuses on the emerging market.

Blackrock acquired Global Infrastructure Partners in a $12 billion deal. Therefore, a Carlyle acquisition may also make sense because of its smaller size with a market cap of over $14 billion. It is also a highly cheap company, as I mentioned above. 

There are several potential acquirers for Carlyle, which has $382 billion in assets under management (AUM). For example, Apollo Global, KKR, and Brookfield could acquire it in a bid to close their AUM gap with Blackstone. 

The three have $632 billion, $527 billion, and $850 billion in AUM, respectively. They also have valuable equity, with a market cap of $54 billion, $72 billion, and $63 billion, respectively. 

The other option is asset management companies seeking exposure to alternative assets, which Blackrock is leading. Some of the potential acquirers are companies like Allianz and T.Rowe Price.

The post As Carlyle Group stock lags, it could be an acquisition target appeared first on Invezz