By Dane Hamilton
The market for large leveraged buyouts, virtually stalled by a Wall Street credit crisis, may take a year or more to revive itself, but buyout executives said at a conference on Tuesday they are finding new strategies to deploy cash.
Those strategies include boosting investment in emerging markets, taking minority stakes in companies and buying distressed assets, all of which do not require as much of the cheap bank debt that fueled the recently stalled buyout boom.
“The size of opportunities will be in the $1 billion to $5 billion range for private equity firms and it’s unrealistic to think larger than $5 billion right now, said Richard Friedman, head of merchant banking at
The cheap debt that fueled the market for large buyouts was driven by investment banks, which repackaged deal debt into securities, including collateralized loan obligations (CLOs), and sold it to investors, said experts. But that market imploded after a spreading mortgage crisis drove investors away after their asset values plummeted.
“The rise of the mega-buyout was dependent on the CLO market and, until that comes back, you will see deals in the $1 billion to $5 billion range,” said Thomas Lee, the veteran buyout executive and president of
In the meantime, private equity firms are casting a wide net for new opportunities, such as non-control investing in companies, a significant shift in an industry that typically demands control.
The $30 billion buyout firm TPG, for instance, disclosed on Monday that it agreed to take a 23 percent stake in Bradford & Bingley for about $353 million, the latest of its minority investments in financial firms.
Other firms are moving quickly into buying bankrupt or troubled company debt. But the strategy has risks, particularly overseas, where corporate law is less developed.
(Addintional reporting by Megan Davies; Editing by Andre Grenon)