Thursday, November 01, 2007

Quantifying the Private-Equity Slowdown

November 1, 2007, 7:30 am
DealJournal -
Posted by Stephen Grocer
Are corporate buyers filling the deal-making void left by private-equity firms?
From the moment the first cracks in the leveraged-buyout-financing wall began to show, corporate buyers were expected to rule the day. The theory went that with buyout firms forced to the sidelines by the credit crunch that turned off the spigot of cheap financing, corporate buyers would be in the clear to win auctions that their private-equity rivals had previously been winning.
Yet in the first two months of the credit crunch that theory didn’t seem to hold. As the M&A bubble burst in August and September, not only did private-equity players shrink from deal making, so too did strategic buyers (though not quite as drastically as their buyout brethren).
That seems to have changed in October, according to data from Dealogic. Deal volume rebounded in the month, suggesting that the bottom of the trough may have been hit. Global deal volume in October (all data are through Oct. 30) hit $318 billion, a 39% and 44% increase from the full month totals of August and September, respectively, according to the data.
Yet in contrast to August and September, when both corporate and private-equity deal volume fell, October’s uptick was driven by corporate buyers while private-equity deal making continued to dry up. In fact, private-equity firms struck just $17.4 billion of deals last month, compared with the $20.3 billion of August and the $25.1 billion of September.
Need more proof of the slow down in private-equity deal making? LBOs accounted for just 5% of October’s overall deal volume. Compare that with June, when private-equity-led buyouts accounted for 31% of global M&A activity.
Here’s a look are few more interesting numbers on the slowdown in private-equity deal making:
$17.4 billionGlobal LBO volume for the month of October, the lowest total since November 2002.
$393 millionU.S. private-equity deal volume for the week of Sept. 30 through Oct. 6, the slowest week since March 6 through March 12, 2005.
$680 billionLBO deal volume through July 15 of this year
$90 billionLBO volume since July 15
3Number of months since a private-equity firm announced a deal greater than $10 billion.

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