Private Equity Deals

When Will Private Equity Deals Return?

According to Pitchbook Data “For the first three quarters of 2008, transaction volume for leveraged buyouts and growth capital financings was 1,268, a 34% decline from 1,935 deals over the same period a year ago.” With the credit crunch and the ensuing financial crisis it has been a tough year for executing buyout deals, especially ones relying on leverage. Many banks have tightened the purse strings and are more hesitant to provide private equity firms with the leverage necessary for the mega-buyouts like during the industry’s peak a few years ago. So an important–and difficult–question is when will private equity deals return? Erin Griffith from PEHUB reports some of the answers given by the panel at The Deal’s 2009 PE Outlook Conference:

Martin Mannion, Summit Partners: The time is now. With discipline, we are seeing the confidence to do deals now.

Jonathan Colby, Carlyle Group: It will probably be the second half of next year before we see any real activity.

Nicole Arnaboldi, DLJ Merchant Banking Partners: It’ll be a multi-year crawl back that will start in the middle market.

Bruce Bowden, Head of M&A, Nokia: The end of this year will be a disaster, and for anything to start looking up, we’re going to need a sign. It could be late into next year.

Erin makes a good point responding to Colby’s estimate: “The “second half of next year” sentiment was certainly reminiscent of something I’d heard before, say, at outlook conferences at the end of last year!” Unfortunately, this underscores an important footnote to any panel discussion like this, that it’s very difficult to estimate when deals will be made more frequently. The return of private equity deals relies on many variables like investors and private equity firms regaining confidence, the financial crisis resolving, banks lending like before; all of which may or may not happen by the second half of last year. So, while it is important to hear what the big dealmakers are projecting, it’s worth noting that predictions like these are probably nothing more than (highly) educated guesses.

Tags: Private Equity Deals, Private Equity Deal, Private Equity Questions, Private Equity Buyouts, Buyout Deals, Buyout reports, private equity deals volume, PEHUB, Private equity conference

Buyouts and the Credit Crunch

Buyouts Under Pressure in Credit Crunch

As the economy falters, several major private equity-backed companies have filed for bankruptcy revealing a grim insight into the recession’s impact on private equity. A new article shows how private equity buyout firms are feeling the squeeze of the credit crunch.

While earlier this week a report showed that salaries and bonuses were staying strong for private equity firms despite the financial crisis, it appears that many companies acquired by private equity firms are now struggling under the amount of debt used for the buyouts. The New York Times has a critical article that points toward private equity as a contributor to the United States’ struggling economy:

Private equity firms embarked on one of the biggest spending sprees in corporate history for nearly three years, using borrowed money to gobble uphuge swaths of industries and some of the biggest names — Neiman Marcus, Metro-Goldwyn-Mayer and Toys “R” Us.

Linens ’n Things, a big retailer owned by the private equity firm Apollo Management, filed for bankruptcy protection this year.

The new owners then saddled the companies with the billions of dollars of debt used to buy them. But now many of the loans and bonds sold to finance the deals are about to come due at the worst possible time.

The piece presents a bleak outlook for those who are working for an acquired firm and those who invested in private equity too, as returns are expected to decrease in the near future:

People who work for companies owned by private equity firms could lose their jobs as firms cut costs to meet their debt obligations. And private equity firms like Apollo Management, which owns Harrah’s and Linens ’n Things, face deep markdowns on the value of their holdings.

Pension funds and college endowments that invested their money into in these funds in recent years hoping for big returns are likely to suffer as well, and many of those investors could face a cash squeeze, as they are forced to hold onto their investments for years until the economy recovers.

To read the full article click here.

Tags: Private Equity Buyouts, Buyout firms, LBO, leveraged buyouts, credit crunch, private equity and the credit crunch, private equity, Buyouts, buyout firms, private equity firms