Investors poured $106 billion into leveraged buyout funds last year, double the total of 2004, says Private Equity Analyst. Weary of the wobbly stock market and alarmed by the real estate run-up, they were lured by eye-popping returns of 50% a year (or better) at a few elite funds. Globally, 2,700 funds are raising half a trillion dollars in cash to invest; this will bankroll them for $2.5 trillion in deals, given their penchant for putting $4 (or more) of debt leverage atop every dollar they put up.
Just half a dozen giant firms control half of all private-equity assets. Three titans--Blackstone, Carlyle Group and Texas Pacific Group--lord over companies with 700,000 employees and $122 billion in sales. Buyout shops own such iconic brands as Hertz, Burger King, Metro-Goldwyn-Mayer, amc Entertainment, Linens ’N Things and more.
... More companies are going private, frustrated by the antifraud Sarbanes-Oxley Act. Thomson Financial counts 32 firms with a combined market value of $54 billion that went private in 2005, up tenfold in three years. Banks, meanwhile, have loosened up lending to extend five times as much senior debt as the equity put up by buyout funds.
Thus buoyed, buyout titans have done well grabbing underpriced, down-but-not-out businesses and whipping them into shape: Texas Pacific with memc Electronic Materials; Silver Lake Partners with Seagate Technology; Blackstone with trw Automotive. Their success has stoked ever more investor demand--never mind that buyout-fund returns go down as money inflows go up
Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.