1996 Set Records Too

How much is too much?

With $314 billion in disclosed value for deals and nearly $200 billion in fundraising by U.S.-based LBO firms in 2006, a lot of observers are wondering if the buyout market has grow too exuberant. It’s an interesting fact that ten years ago, when totals were about one tenth of today’s, prognosticators were unsure how much fundraising could grow.

In 1996, both deal making and fundraising dollar volume set records. Buoyed by a strong fourth quarter and a flurry of “mega-deals”—hardly mega by today’s standards—in 1996, the buyout industry completed 277 deals worth a total disclosed of $28.77 billion, a 40% increase over 1995. The industry prided itself on closing seven deals worth more than $1 billion.

Among the top deals that year were Kohlberg Kravis Roberts & Co.’s $4.6 billion acquisition of Borden Inc.; Welsh, Carson, Anderson & Stowe‘s $1.3 billion acquisition of World Financial Network; GS Capital Partnersand The Blackstone Group’s acquisition of AMF Group Inc. for $1.3 billion; Forstmann Little & Co.’s buyout of Community Health Systems for $1.4 billion; and Bain Capital‘s and Thomas H. Lee Co.’s acquisition of TRW Information Systems for $1.1 billion in September.

That same year firms raised what at the time was considered a huge sum for fresh transactions—$22.6 billion. Among some of the big names, KKR raised $5.7 billion, DLJ Merchant Banking raised $3 billion and Hicks, Muse, Tate & Furst raised $1 billion.

The 1996 total not only beat the previous year’s tally of $18.4 billion by 23%, but it marked what many sources predicted would be a peak in the fundraising market, which had enjoyed a multi-year run of new highs. Tim Bliamptis of venture investor Brinson Partners told Buyouts at the time: “The market will still be very active, and we may well end up with the same number of funds. We just may not see two or three funds together raising [a combined sum of] $9 billion or $10 billion.”

In fact, while the dealmaking total was flat at $22.7 billion, fundraising was much improved the next year. For U.S.-based funds, it leapt up to $34.56 billion. Who knows? Maybe the industry will break through a similar ceiling in 2007 and one year from now we’ll be talking about the U.S. LBO industry’s first $300 billion fundraising year.