Monday, October 01, 2007

A Parched Month Ends on Hopeful Note

WSJ DealBook, September 28, 2007, 1:13 pm

A few months ago, at the peak of the buyout boom, a $2 billion transaction could have easily slipped under the radar. These days, it is, literally, a big deal.
Case in point is 3Com, which said Friday that it will be taken private by Bain Capital for $2.2 billion. That single announcement accounted for about 11 percent of the world’s buyout volume during the entire month of September, according to data from Dealogic. It was about 16 percent of buyouts in the United States. That gives you an idea how slow this month has been.
Private equity firms rely on borrowed money to fund their acquisitions. After a long period of easy access to credit, buyout firms hit a wall this summer when the debt markets pulled back. The result was a dramatic decline in private equity deals, especially those with big price tags.
It remains to be seen whether 3Com is an isolated event or a sign that the drought of private equity deals is breaking. On Thursday, the banks financing the buyout of First Data — a deal that came before the credit crunch — were able to sell a larger-than-expected amount of loans related to the transaction, which is also a potentially positive sign.
Before the 3Com buyout was announced, Dealogic calculated that global buyout volume in September was about $17.6 billion. In September 2006, a single buyout — that of Freescale Semiconductor — was worth just as much. For all of September 2006, the figure was $57.5 billion, more than three times this September’s total.
The dropoff was similar for private equity activity in the United States, where buyout activity came to $11.4 billion in September (excluding 3Com), compared with $31.7 billion a year ago.
Dealogic also published preliminary third-quarter data, which indicated that overall merger activity — as opposed to just buyouts — actually rose from a year ago. It reported Friday that global announced mergers came to $992 billion in the latest quarter, 24 percent more than the same period a year ago (but down 43 percent from a very busy second quarter).
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