Private Equity: Episode 11 – The History of PE: The 1980s/1990s

During the 1980s, the Private Equity sector grew significantly in the United States. European initiatives also began to gain traction.

In just one decade, the number of management firms in the U.S. grew dramatically, reaching over 650 firms by the 1990s. This growth was still driven by Venture Capital (VC) activities aimed at supporting innovation across nearly every industry sector. Specialized single-sector funds (energy, microelectronics, etc.) and those focused on the secondary market (as discussed in episode 8 on liquidity) also emerged.

The financialization of the economy, coupled with the activism of investment banks and the rise of leveraged buyouts (LBOs), paved the way for Private Equity focusing on mature companies. These years saw the creation of major industry players, some of which are still among the most significant today: Bain Capital (1984), Blackstone (1985), and Carlyle Group (1987).

Transactions became increasingly larger, and acquisition records were regularly broken. One of the high points of the era was KKR’s purchase of RJR Nabisco in 1988/89 for more than $30 billion, particularly noted for the unmatched leverage involved in the LBO. This deal made headlines in the U.S. and marked the beginning of many more acquisitions, often hostile takeovers. The goal at the time was simply to extract the maximum return, sometimes by selling off the companies after taking control, with the value of individual assets exceeding the value of the company as a whole.

Of course, this growth was neither linear nor explosive. The industry would face a number of crises, beginning with a decline in attractiveness starting in the second half of the 1980s, due to fierce competition between players and limited opportunities in both volume and returns. The 1987 stock market crash would significantly impact investment activity: delayed IPOs, often serving as exits for funds, would block new transactions, and the rise in interest rates would reduce bank loans and thus leverage on LBOs.

In France, at the same time, various players entered the fray. At the forefront, business angels fueled the venture capital market with projects needing funding. Investment funds then took over and capitalized on the development of the Paris Stock Exchange to make exits via IPOs, especially through the Nouveau Marché created in 1996.

The French institutional and regulatory framework supported this growth, with the creation of mutual funds (FCP) and Innovation Mutual Funds (FCPI) in the 1980s and 1990s.

American industry leaders set up shop in France and Europe during this decade. Major French funds emerged as well: Axa Private Equity (now Ardian) in 1996, PAI Partners in 1998, and Eurazeo in 2001.

The 2000s would see spectacular deals multiply until 2007. After 2008, the pace would slow down. We’ll see why soon—although you may already have a good idea…

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