Buyout Wrap: Down But Not Out

The buyouts deal market is down, way down, but it’s certainly not out.

While the numbers themselves hardly compare to last year’s or the year before, buyout firms have completed more than $16.6 billion worth of transactions in 2001 (they spent $41.4 billion in 2000). The difference is, the majority of the deals are much smaller – large deals are few and far between – and, of course, for several reasons, there just aren’t as many deals being done.

Since the beginning of the fourth quarter – yes, we’re already in the fourth quarter – buyout deal volume has reached about $540 million. Those firms boasting closes thus far include The Riverside Co., ICV Capital Partners, Dubin Clark, Lincolnshire Management, Morgenthaler and Huron Capital Partners.

Most of the deals completed so far this quarter have been between $15 million and $40 million. So closing out the year with more than $20 billion in buyout deals is not so promising. Sources say we’re not likely to see another record-breaking year until 2003 or 2004.

Buyout Blast off

One deal that has yet to close, but was agreed to early this quarter, could mean big things for the future of upper middle market and large cap deals.

Apollo Mangement recently inked a deal to acquire IMC Global Salt for $640 million, or approximately 5.2 times trailing EBITDA. Not only has it been a while since Apollo has shown up on the deal radar screen, but also deals of this size are not as common as they once were.

Should it close, the deal will allow Apollo to acquire the divested salt division of fertilizer company IMC Global and its Ogden, Utah, production facility.

Indeed, while most private equity players will be happy to see a bid deal get done – the average deal size for the third quarter was $87 million – at least one firm has qualms about this deal in particular. Chicago’s Madison Dearborn Partners is suing the seller, IMC Global Inc., for its “bad faith” in an earlier deal in which Madison Dearborn intended to take the salt business and Ogden facility for $565 million.

Madison Dearborn alleges that IMC Global intentionally delayed the transaction in order to shop around for another buyer and to pursue refinancing. The deal, which was nearing a definitive agreement over the summer, was called off on June 19, when Madison Dearborn world not renegotiate its purchase price, according to the firm’s complaint.

Nonetheless, the promise of a significant amount of debt financing makes the deal stand out. While Apollo provides equity from its Fund V, bank debt will come from JP Morgan Chase and Deutsche Bank, with the high-yield debt being co-arranged by Credit Suisse First Boston and JP Morgan Chase.

Most of the deals completed so far this quarter have been between $15 million and $40 million. So closing out the year with more than $20 billion in buyout deals is not so promising. Sources say we’re not likely to see another record-breaking year until 2003 or 2004.

Leslie Green can be contacted at Leslie.Green@tfn.com