The Philosopher’s Blackstone: Private equity firm acquires family history business for $4.7bn

August 12, 2020

2 min read

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What's going on here?

Private equity firm Blackstone has agreed to acquire a 75% stake in genealogy provider Ancestry.com for $4.7bn. It is a big bet on family history tracing and personalised medicine.

What does this mean?

Ancestry.com is the world’s largest provider of DNA services, allowing customers to trace their genealogy and identify genetic health risks with testing kits sent to their homes. The family history titan has more than 3m paying customers in about 30 countries and earns more than $1bn in annual revenue. Blackstone is betting that more consumers at home amid the COVID-19 pandemic will turn to Ancestry for its services

The deal is Blackstone’s first acquisition out of Blackstone Capital Partners VIII, the world’s largest private equity fund that raised $26bn from investors in 2019. The private equity mogul is buying Ancestry from three other private equity rivals: Silver Lake, Spectrum Equity and Permira. It is the third time Ancestry has changed hands between private equity firms since 2012.

What's the big picture effect?

The private equity sector, in general, is flush with cash. With $2 trillion in dry powder (unused funds), private equity firms will play a key role in deciding which businesses survive the current economic crisis. Azzurri Group, the owner of the restaurant chains Zizzi and Ask Italian, is one example of a company that was recently rescued by a private equity firm (see our article on that here). These cash-stacked firms can reap the benefits of attractive prices in a sea of companies with liquidity problems.

However, the acquisition of Ancestry also shows that PE firms are hungry to pay full prices for the right assets. After all, the $4.7bn price tag is a significant jump from Ancestry’s $2.6bn valuation. The pandemic, therefore, is presenting opportunities for PE firms to invest in fast-growing assets that are transforming the global economy. Arguably, Blackstone’s acquisition of Ancestry is a neon sign that the life sciences sector has huge growth potential. The asset manager has already spent more than $1bn this year investing in drugs that target high cholesterol, kidney disease in children and devices for diabetes patients.

We are likely to see Private Equity (PE) practices in law firms become busier as deal volume increases, particularly in the healthcare and life sciences sectors. PE lawyers will be needed to structure investments into companies to manage risks. This will involve advising on whether to acquire ordinary or preference shares (the latter have priority for claiming assets in the event of insolvency but have limited voting rights). Trainees will be key to the due diligence process. This will involve an intensive review of the target’s business – including its financial statements, corporate governance information, key contracts and intellectual property.

The pandemic has created a buyer’s market where prices are at an all-time low. The private equity sector has the cash to capitalise on this through either the rescue of struggling businesses or investments in winners from the coronavirus crisis. It’s the perfect chance for PE firms to show that they are Saviours not Barbarians at the Gate.

Report written by Deniyi Coker

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