September 30, 2008
With the credit markets as barren as a lunar landscape at the moment, the buyout markets (particularly on the large scale) have slowed. Year-to-date thus far, global buyout activity has plunged 74% compared to last year to a four-year low of $180 billion.
Deal volume has decreased most sharply in the United States, with an 83.5% decline year-to-date to $61.8 billion. Volume in Europe fell 61% to $70.7 billion and in Asia deals fell 25% to $18.8 billion. The rest of the world totaled $29.8 billion.
Even with these down figures, those that say that buyouts are a thing of the past though are seriously delusional. Smaller deals are getting done and financing has gotten more creative as many have put the current cap of debt financing for a deal at $2 billion. Once the debt markets pick up again (and they will!) the large deals will return just as they did when things sorted themselves out after the junk bond market collapse two decades ago. Private Equity firms won’t sit on the sidelines forever.
September 29, 2008
Despite down dealflows and chaos in the banking systems, Private Equity remains an incredibly attractive asset class to invest in. A record $324.4 billion was raised by Private Equity firms in the first half of this year with investments in distressed assets funds leading the uptick with a 28% rise to $33 billion. This follows up a recent survey by Preqin in which a third of investors surveyed said they were shifting money to distressed funds from buyouts.
September 28, 2008
Jon Moulton, of Alchemy Partners fame, believes that between 50 and 200 Private Equity-backed companies in the UK are in danger of not being able to meet their banking covenants by this Christmas.
Obviously this prediction is targeted at those firms that were acquired using extreme leverage ratios during the two year plus credit boom preceding the crunch that began in August of 2007. A downturn will make it tough to cover interest payments using operating profit when you’re geared at 90%. It doesn’t take much clarevoyance to see that wave coming.
A study of the 124 largest buyouts from the 1980’s by Steven Kaplan and Jeremy Stein showed a default rate of 2% on buyouts organized prior to 1985, and a default rate of around 27% on buyouts organized in the second half of the decade which was when the high-yield bond market was at its most prominent. It will be very interesting to see how the 2000’s break down. Perhaps a shorter period of high default rate, but with higher rates of default? Time will tell.
September 27, 2008
U.S. Banker has just released it’s list of the top honeys in money (ok, maybe that term’s not helping the cause).
September 26, 2008
Simple, sound advice often stands the tests of time. Financial history is full of such examples. The following has been sourced from Daring Opinion by Elie Elhadj.
In December 1863, Hugh McCulloch, then newly appointed U.S. Comptroller of the Currency and later the U.S. Secretary of the Treasury, wrote a letter to American banking institutions. Here are some excerpted highlights:
- Let no loans be made that are not secured beyond a reasonable contingency. Do nothing to encourage speculation. Give facilities only to legitimate and prudent transactions.
- Distribute your loans rather than concentrate them in a few hands. Large loans to a single individual or firm, although sometimes proper and necessary, are generally injudicious, and frequently unsafe. Large borrowers are apt to control the bank.
- If you doubt the propriety of discounting an offering, give the bank the benefit of the doubt and decline it. If you have reasons to distrust the integrity of a customer, close his account. Never deal with a rascal under the impression that you can prevent him from cheating you.
- Pay your officers such salaries as will enable them to live comfortably and respectably without stealing; and require of them their entire services. If an officer lives beyond his income, dismiss him; even if his excess of expenditures can be explained consistently with his integrity, still dismiss him. Extravagance, if not a crime, very naturally leads to crime.
- The capital of a bank should be reality, not a fiction; and it should be owned by those who have money to lend, and not by borrowers.
- Pursue a straightforward, upright, legitimate banking business. ‘Splendid financing’ is not legitimate banking, and ‘splendid financiers’ in banking are generally either humbugs or rascals.
September 26, 2008
For Erwan: French IT service provider Atos Origin has rejected a €1.6B takeover approach by Candover for its Atos Worldwide unit, which specialises in electronic payment systems.
Since the offered was received, Centaurus Capital has halved its stake in Atos and now controls a combined 16.71% interest along with fellow hedge fund Pardus. Meanwhile PAI Partners has upped its stake to 22.61% and has become the company’s largest individual shareholder. PAI was the founding shareholder of Atos when the company was created through the merger of Axime and Sligos, with the investor holding 100% of the company until its listing. The private equity firm also oversaw Atos’ merger with Origin in October 2000.
September 25, 2008
PwC has just released a study that shows private equity firms are looking to target companies in transport, distribution and logistics for acquisition. The business service sector as a whole is going against the down market grain with deal flow numbers increasing. In any downturn corporations begin to divest their non-core assets following strategy shifts and the restructurings they’re sure to bring. With this in mind 2009 should be an excellent vintage for those with the ability to be buyers, which is just what private equity funds are positioned to be.