By the time the GE/Blackstone transaction was announced April 10, there was such a great deal of prognostication about it you’d think “the end is nigh.”
And this raises the question, “Why?” Why is the GE deal a harbinger of the apocalypse? Are the assets overvalued, or is the underlying premise for the acquisition flawed? Is money too cheap, or is Blackstone too big?
At the moment, nobody knows for sure, and only Blackstone and its investors will ultimately know the answer when and if the returns come in. The real question is: Why are there so many questions at this point? The appearance of this type of reaction seems to be a form of post-GFC PTSD.
It seems as if almost every deal of a certain size seems to grab headlines and analysis, such as Hilton (owned by Blackstone) selling the Waldorf-Astoria Hotel for $1.95 billion to a Chinese insurance company. Uh-oh, overpaying by foreign investors and yields being compressed can only mean one thing: “It’s 2007 all over again,” and we all better get ready for the precipitous fall.
Really? Maybe GE made a good deal after getting pretty burned by the crisis and felt that this was a good time to recoup and get back to basics. (That’s what its CEO, Jeffrey Immelt, said in a statement about the sale.) Maybe Blackstone sees there is still a lot of runway left in this cycle and put its capital where its mouth is.
In reality, big deals are being done, and they seem expensive based on current history. However, terms such as “overheated” and “frothy” have yet to make their way into this cycle yet.
Remember, someone will ultimately be “right” when the market faces a real downturn because they’ll tell you so. “Remember, I told you there would be a major correction,” they will say — and yes, they would be “right.”
But how far ahead of the cycle is the question, not the answer.
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Jonathan Schein is senior vice president and managing director of business development at Institutional Real Estate, Inc.
