Beware: Private equity firms are on the loose, pulling down companies' shares as they reduce their positions in various companies amid perceived overvaluations in the market.
Just today, shares of Zimmer Biomet (ZBH) were down nearly 4% after the medical device company announced that shareholders including private equity giant Kohlberg Kravis Roberts (KKR) and privately held TPG Global intend to sell about 7.4 million shares of the company's roughly 200 million shares outstanding. The shares will be sold in a secondary exchange at an initial price of $129.75 per share.
Another recent PE victim is NXP Semiconductors (NXPI) . Blackstone (BX) , another of the largest PE firms set to report holdings by Monday's 13-F deadline with the Securities and Exchange Commission, said in a June SEC filing that it plans to sell 14.8 million NXPI shares. Blackstone as of March held about 9.6% of NXP's market cap, or a roughly $2.9 billion stake. (NXPI shares are a holding in Jim Cramer's Action Alerts PLUS charitable trust.)
Cramer said Wednesday that he has been "waiting and waiting" for Blackstone to finish selling its position in NXP over the past several months, until finally Blackstone's remaining holdings now appear to be "a minor amount that can't hurt the stock anymore," he said in a Wednesday interview with CNBC.
The question now is: Who's next?
One way to monitor which companies could be most affected by private equity selloffs -- which will become clearer when the top PE firms post their 13-F holding filings with the SEC before Monday's deadline -- is to look at how much of a company's market cap a private equity firm controls based on its previous 13-F filing, which list holdings through March.
In Blackstone's case, its major holdings as of March (as a percentage of the companies' market cap) primarily have included Vivant Solar (VSLR) (77%), Performance Food Group (PFGC) (59%) and Hilton Hotels (HLT) (43%).
Meanwhile, private equity firm Carlyle Group's (CG) largest listed positions as of March included a roughly $2 billion stake in Axalta Coating (AXTA) and a $1.7 billion position in CommScope (COMM) . For KKR, its top holdings over the period included a $4.3 billion stake in another Action Alerts PLUS holding, Walgreens (WBA) , a $1.5 billion stake in PRA Health Sciences (PRAH) , and a $1.2 billion stake in HCA Holdings (HCA) .
The reasons for PE firms to engage in such mass liquidations range from high market valuations of their investments to the need to reduce debt after accumulating exorbitant debt through leveraged buyouts or other debt-fueled transactions.
And with recent PE sentiment being that stock prices are trading at high valuations, it looks like Blackstone, KKR and Carlyle will reveal a host of new sales in next week's SEC holdings disclosures, Real Money's Tim Melvin said in a Wednesday phone interview.
"Nobody in the PE space is particularly bullish right now," Melvin said, noting that "valuations are crazy" in the current market in terms of many firms' ability to generate sufficient free cash flows, which PE firms often gauge by considering a stock's price against its underlying EBITDA, or earnings before interest, taxes, depreciation and amortization.
Melvin said KKR, Blackstone and Carlyle have been net sellers in the first quarter, and the trend is likely to continue. "I think you'll see more selling. There's been no real change in the market to see here -- valuations continue to be high," he said.
And these large-block sales -- which are arranged in secondary markets as opposed to the primary markets that companies typically use for the placement of major offerings such as initial public offerings -- are likely to continue weighing down share prices as buyers find discounts in gobbling up shares.