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February 08, 2008

US buyouts will bounce back in 6-9 months: David Rubenstein

Extracts from Knowledge@Wharton synopsis of the Carlye Group founder's recent speech.
According to Rubenstein, the 1970s and 1980s were the "Bronze Age" of private equity, when early buyout deals emerged, culminating in 1989 with Kohlberg Kravis Roberts' leveraged buyout of RJR Nabisco and then the collapse of the proposed buyout of United Airlines. After the recessionary period of 1991 to 1992, private equity entered what Rubenstein calls the industry's "Silver Age." During this time, buyout deals grew larger, sellers turned to private equity as a way to liquidate holdings and sponsors were able to prove their ability to transform companies and earn handsome returns. That era, he said, ended when the technology bubble burst in 2000.

After a two-year break, private equity then entered what Rubenstein calls its "Golden Age," as deals grew to enormous size and private equity firms teamed together in so-called "club" deals to take over ever-larger companies. With the current credit crisis, private equity deals have slowed dramatically. Rubenstein told the audience that in order to revive the industry, private equity sponsors will need to scale back the size of deals, reduce leverage and look overseas for opportunities in countries such as India and China.

"Once a period of time is over, once the debt on the banks' books is sold and new lending begins in six to nine months, I think you will see private equity coming back in a Platinum Age, better than ever before," he predicted.
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.