Buyout Market Rides Torrid Pace

The dog days of summer are gone, sans anything vaguely resembling a lull in activity, as a number of buyout pros say they spent August not basking under the sun, which they had intended to do, but hunched over desks and squinting at balance sheets. And to be sure, the Q3 deal numbers reflect as much.

The last three months was a record-shattering period, as more than $50 billion in sponsored-backed LBOs was completed. The last quarter to come close to that amount was Q4 2004, when about $46 billion worth of LBO transactions was completed. The bad news is that the 191 control-stake deals that closed in Q3 represents a slight decline compared to Q1 and Q2 of 2005, when 218 and 223 deals, respectively, were completed.

“If a trend can be the fact that nothing has really changed – that the financing market remains as strong as ever, prices continue to be high and larger and larger funds continue to hit the market – then I would say that was the underlying trend in today’s marketplace,” says Timothy DeVries, a managing general partner at Norwest Equity Partners.

Year-to-date, U.S.-based buyout shops completed at least 632 deals for a disclosed total of about $132 billion, leaving 2005 just shy from setting historic records for quantity and total value of transactions closed. In 2004, 752 deals signed, sealed and delivered to the tune of about $138 billion.

It is worth noting, however, that the closed deal numbers this time around were heavily skewed by the two largest deals of the quarter – which combined accounts for more than $20 billion.

The consortium comprised of Silver Lake Partners, Blackstone Group, Texas Pacific Group, Thomas H. Lee Partners and Kohlberg Kravis Robert & Co. (KKR) completed the largest deal in the past three months (and the past 16 years) when it took SunGard Data Systems private for $11.3 billion. Meanwhile, the $8.8 billion (including the assumption of debt) buyout of Toys “R” Us by KKR, Bain Capital and Vornado Realty Trust represents the quarter’s second largest deal. Goldman Sachs Capital Partners and EQT AB combined to acquire the cleaning services company ISS AS for $3.8 billion, the third largest deal in Q3.

In addition to these three, there were 10 other deals with price tags of at least $1 billion that closed in Q3. Among these are Blackstone’s $3.2 billion buyout of hotel chain Wyndham International, Apax Partners’ $1.9 billion buyout of Travelex PLC, and the $1.75 billion tag team acquisition of InterGen NV by AIG Global Investment Group and the Ontario Teachers’ Pension Plan.

This story previously appeared in Buyouts, a related publication.