Buyout on Record Pace

It has been five years since the LBO industry had its record breaking tally of more than $60 billion in total fund-raising volume. In 2005, those same firms that helped make 2000 a record-breaking year are back in the market, and in most cases are looking for decidedly more capital than before. So all signs point to 2005 as a banner year for fund-raising.

Take Sun Capital Partners, for example. In 2001, the Boca Raton, Fla.-based firm raised $200 million in capital. Two years later the firm went back to the market and more than doubled that sum, raising a $500 million fund. Less than two years after raising that vehicle, the buyout shop is once again in the market with another buyout fund targeted at $1.5 billion.

Sun has demonstrated an uncanny ability to put money to work, and rather than returning to the market every two years, it is certainly more efficient to raise a larger fund. But that the firm is able to make such a large leap reveals that if the track record is there, private equity firms can push the envelope in terms of fund size.

This is especially true in the large market. Carlyle Group closed on more than $10 billion in the first quarter while Blackstone Group has earmarked $10 billion as the target for its next fund; Goldman Sachs, Warburg Pincus and Thomas H. Lee are each looking for aiming to raise in the ballpark of $7.5 billion to $8.5 billion; and Apollo Management and Madison Dearborn have reportedly set targets in the $5 billion range.

If all of these seven firms hit their fund targets, then they would account for more than $50 billion in capital raised. Only twice in the past 15 years has there been annual fund-raising totals of more than $50 billion. Surely, 2005 is on pace to be the third.

“There are no longer any doubts about private equity as an industry,” says Capital Dynamics Managing Director Thomas Kubr. “I’m not sure how much money is going to be raised this year, but I certainly would not be surprised if it’s around $200 billion [worldwide].”

There are currently 158 LBO funds in the market that accumulatively are seeking more than $117 billion. Those funds have thus far closed on a combined $36.6 billion, which depicts a fundraising push that is really just getting started.

This article previously appeared in Buyouts, an affiliated publication.