Pringles Packaging Maker’s Acquisition Offers Rare Pop Amid Private Equity Buyout Crunch

Monday saw a ray of light find its way into the shadow of what Bain & Company previously dubbed a “towering backlog” facing private equity buyout funds.

US PE firm KPS Capital Partners sold European food can company Eviosys to Sonoco Products — a South Carolina-based packaging company that makes Pringles’ famed paperboard tube cans — for $3.9 billion after paying $2.7 billion for the company in 2021. A rare buyout windfall in 2024, the deal tells us a lot about the state of PE, the rise of interest rates, and even the pensions sector.

Don’t Pension It

The PE sector kicked off 2024 with a record $3.2 trillion worth of unsold deals on its books, according to Bain. Many of those deals date back to 2021, when low interest rates led to a record $1.1 trillion in buyouts — activity has since plummeted by around half. As interest rates have climbed, corporate valuations have gone south, making it harder for buyout firms to exit these deals and make good on returns to their investors:

• Buyout funds raised between 2019 and 2021 have together returned under 20% of investor commitments, something Goldman Sachs said is “drastically behind” funds raised in previous years. That KPS’s sale of Eviosys netted a solid windfall stands out.
• One group in particular will hope the windfall acquisition is a sign of more to come: large public pension funds, which have on average 14% of their assets in private equity, according to data from JPMorgan Chase and Boston College. Sovereign wealth funds and university endowments are other notable investors in buyout funds.

The Wall Street Journal noted earlier this month that some pensions have been selling PE fund stakes they picked up during the 2021 glory days for a loss on the secondhand market — secondary market buyers paid an average of just 85% of what stakes were valued at three to six months earlier last year, according to Jefferies. Meanwhile, two of California’s largest pensions, CalPERS and CalSTRS, have approved plans to take out loans to access cash.

Zombie Econolypse: Amid the crunch, PE funds are holding on to investments longer than they promised: Almost half of PE investors quizzed by Coller Capital earlier this year said they had money in zombie funds, a.k.a. PE funds that failed to pay out on their expected timetable.