Dog Days: Looking Further Into the LBO Slowdown

WSJ OnLine Deal Journal, August 14, 2007:


Just how much has the buyout boom slowed? For an idea, try taking a stab at this question: When was the last major buyout?
The answer: Blackstone Group’s $20 billion deal to buy Hilton Hotels on July 3. (Though depending on your definition of megabuyout, Cerberus Capital Management’s $3.7 billion deal for United Rentals on July 23 might take the prize, but then the first half of the year did spoil us.)
That is in stark contrast to just a few months back, when hardly a day — let alone a week — went by without a private-equity firm taking a company private. It just begins to show how slow deal making has gotten for the private-equity industry in recent weeks.
As Deal Journal pointed out in this post earlier today, buyout firms participated in just 13.5% of the $81 billion of deals struck in the U.S. from July 23 to Aug. 8. That is down from 36.1% for the rest of year, according to Thomson Financial. Moreover, through the first 10 days of August, global buyout volume fell to $4.86 billion, while U.S. buyout volume failed to surpass $2 billion, according to Dealogic.
Let us put those numbers in perspective: Buyout volume through the first seven months of this year has averaged $95.6 billion a month. Meanwhile, August buyout volume — almost half way through — is on pace to barely surpass $15 billion world-wide and $6 billion in the U.S. That falls well short of the previous monthly lows of $22.8 billion world-wide (February 2006) and almost $12 billion in the U.S (April 2006) since the beginning of 2006, according to Dealogic. Also, the two-week period ending Aug. 11 was the slowest two week period of this year.
This stall in private-equity deals can’t be pinned on a summer slowdown. In 2006, buyout volume averaged about $60 billion a month, and August buyout volume last year came in just below that average at $59 billion, according to Dealogic.
Yet in a sign of how busy private-equity firms were earlier in the year, private equity’s buying frenzy still is well ahead of last year’s pace. LBO deal volume through Aug. 10 was $705.6 billion world-wide and $435 billion in the U.S. That is up almost 87% and 100%, respectively, from the same period last year.