Biggest LBO of Year Signals Appetite May Be Growing: Real M&A
2015-08-13 16:45:36.65 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Brooke Sutherland and Devin Banerjee
(Bloomberg) -- Carlyle Group LP’s $8 billion purchase of
Symantec Corp.’s data-management business shows big buyouts can
still happen.
The deal announced Tuesday was the largest private-equity
takeover of a U.S. company so far this year. It may not hold
that title through December. While the purchase price is a far
cry from the record $45 billion spent on the buyout of TXU Corp.
in 2007, there are signs that private-equity firms’ dealmaking
ambitions are expanding as they seek to put record amounts of
money to work.
There have already been more $5 billion-plus private-equity
takeovers in 2015 than in all of last year, according to data
compiled by Bloomberg. Just one more $8 billion acquisition
could put U.S. volumes on track for the biggest year since the
financial crisis.
Private-equity firms are facing pressure to invest their
piles of cash. Firms were sitting on $1.32 trillion in dry
powder as of June 30, according to research firm Preqin. That’s
roughly equivalent to the gross domestic product of Mexico.
There could be a handful of buyouts in the $5 billion to $10
billion range before the end of the year, said David Fann, chief
executive officer of TorreyCove Capital Partners.
“Transactions of over $5 billion in enterprise value are
still more the exception than the rule,” said Fann, whose firm
advises investors in private equity. But “there’s just a lot of
money on the table. There’s a possibility of larger deals
happening.”
Reloading Time
Buyout firms have already exited more than $100 billion in
U.S. investments this year through sales and public offerings,
according to data compiled by Bloomberg. It’s time to reload.
“This is an asset management merry-go-round and it’s
moving,” said Scott Rostan, chief executive officer of Training
The Street, a New York-based firm that trains junior bankers and
business school students. “If they don’t get on, the horse goes
away because they’re going to have to return the committed
capital. But they need to make smart investments because if they
don’t, it’s going to be a short ride.”
The prospect for a handful of bigger deals doesn’t mean the
floodgates are open. U.S. buyout volume this year will still
fall way short of the $378 billion record set in 2007. There are
a number of things making it difficult for private-equity
buyers: near-record equity valuations, regulatory limits on debt
burdens and increasing competition from corporate buyers who are
also under pressure to put cash to work.
That means the big buyouts these days won’t be as big as
those in the boom years, and they will probably be structured a
little differently.
New Clubs
Very few, if any, private-equity suitors can undertake an
$8 billion acquisition without help. Before the financial
crisis, that aid may have come from another private-equity firm
as in the case of the TXU buyout, which involved a number of
firms. But these club deals have largely disappeared because of
government scrutiny. Instead, pension or sovereign wealth funds
-- some of the biggest investors in private-equity funds -- are
increasingly becoming equity partners on transactions.
“It’s the new club deal with a very different twist,”
Rostan said.
Regulators have also taken note. The U.S. Securities and
Exchange Commission, in its review of the industry after
implementation of the 2010 Dodd-Frank law, highlighted co-
investments as an area of concern. SEC officials have said
private-equity managers should increase disclosure regarding
which investors receive the opportunity to co-invest in deals
and why.
About 10 percent, or $380 billion, of private-equity assets
under management is co-invested capital, the consulting firm
Bain & Co. said in a March report.
Too Big
Some targets are still just too large. CDK Global Inc., the
provider of information technology to automobile dealers that’s
exploring a sale to private-equity firms, could be one of those.
Blackstone Group LP, Hellman & Friedman and Permira have
been examining CDK Global’s financial information, according to
people familiar with the matter. CDK Global has an enterprise
value of about $8.7 billion. Tacking on a 30 percent premium
would increase the purchase price to more than $11 billion.
No one has attempted a buyout of that size in the U.S.
since 3G Capital agreed to buy H.J. Heinz Co. for more than $23
billion in 2013 -- and it had help from Warren Buffett.
Even so, there’s reason to be optimistic that private-
equity buyers will be busy with deals of all sizes. Interest
rates are still favorable, debt financing is still available and
that cash keeps building.
“You’re only in business as a private-equity fund to do
deals, so sooner or later, you’ve got to do deals,” said Mel
Cherney, a partner at law firm Kaye Scholer in New York who has
represented private-equity buyers. “It takes a lot of
discipline to stay within the parameters that you set for
yourself in terms of projected returns, but clearly there’s
pressure to put that money out there.”
For Related News and Information:
Carlyle to Buy Veritas for $8 Billion in Year’s Biggest LBO
Leveraged Loans Left Behind in M&A Boom as Buyout Firms Outbid
LBO Comeback Nears as PetSmart Leads Busy Two Months: Real M&A
Top deal news: DTOP <GO>
Real M&A columns: NI REALMNA <GO>
--With assistance from Leslie Picker in New York.
To contact the reporters on this story:
Brooke Sutherland in New York at +1-212-617-0448 or
bsutherland7@bloomberg.net;
Devin Banerjee in New York at +1-212-617-1534 or
dbanerjee2@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman
2015-08-13 16:45:36.65 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Brooke Sutherland and Devin Banerjee
(Bloomberg) -- Carlyle Group LP’s $8 billion purchase of
Symantec Corp.’s data-management business shows big buyouts can
still happen.
The deal announced Tuesday was the largest private-equity
takeover of a U.S. company so far this year. It may not hold
that title through December. While the purchase price is a far
cry from the record $45 billion spent on the buyout of TXU Corp.
in 2007, there are signs that private-equity firms’ dealmaking
ambitions are expanding as they seek to put record amounts of
money to work.
There have already been more $5 billion-plus private-equity
takeovers in 2015 than in all of last year, according to data
compiled by Bloomberg. Just one more $8 billion acquisition
could put U.S. volumes on track for the biggest year since the
financial crisis.
Private-equity firms are facing pressure to invest their
piles of cash. Firms were sitting on $1.32 trillion in dry
powder as of June 30, according to research firm Preqin. That’s
roughly equivalent to the gross domestic product of Mexico.
There could be a handful of buyouts in the $5 billion to $10
billion range before the end of the year, said David Fann, chief
executive officer of TorreyCove Capital Partners.
“Transactions of over $5 billion in enterprise value are
still more the exception than the rule,” said Fann, whose firm
advises investors in private equity. But “there’s just a lot of
money on the table. There’s a possibility of larger deals
happening.”
Reloading Time
Buyout firms have already exited more than $100 billion in
U.S. investments this year through sales and public offerings,
according to data compiled by Bloomberg. It’s time to reload.
“This is an asset management merry-go-round and it’s
moving,” said Scott Rostan, chief executive officer of Training
The Street, a New York-based firm that trains junior bankers and
business school students. “If they don’t get on, the horse goes
away because they’re going to have to return the committed
capital. But they need to make smart investments because if they
don’t, it’s going to be a short ride.”
The prospect for a handful of bigger deals doesn’t mean the
floodgates are open. U.S. buyout volume this year will still
fall way short of the $378 billion record set in 2007. There are
a number of things making it difficult for private-equity
buyers: near-record equity valuations, regulatory limits on debt
burdens and increasing competition from corporate buyers who are
also under pressure to put cash to work.
That means the big buyouts these days won’t be as big as
those in the boom years, and they will probably be structured a
little differently.
New Clubs
Very few, if any, private-equity suitors can undertake an
$8 billion acquisition without help. Before the financial
crisis, that aid may have come from another private-equity firm
as in the case of the TXU buyout, which involved a number of
firms. But these club deals have largely disappeared because of
government scrutiny. Instead, pension or sovereign wealth funds
-- some of the biggest investors in private-equity funds -- are
increasingly becoming equity partners on transactions.
“It’s the new club deal with a very different twist,”
Rostan said.
Regulators have also taken note. The U.S. Securities and
Exchange Commission, in its review of the industry after
implementation of the 2010 Dodd-Frank law, highlighted co-
investments as an area of concern. SEC officials have said
private-equity managers should increase disclosure regarding
which investors receive the opportunity to co-invest in deals
and why.
About 10 percent, or $380 billion, of private-equity assets
under management is co-invested capital, the consulting firm
Bain & Co. said in a March report.
Too Big
Some targets are still just too large. CDK Global Inc., the
provider of information technology to automobile dealers that’s
exploring a sale to private-equity firms, could be one of those.
Blackstone Group LP, Hellman & Friedman and Permira have
been examining CDK Global’s financial information, according to
people familiar with the matter. CDK Global has an enterprise
value of about $8.7 billion. Tacking on a 30 percent premium
would increase the purchase price to more than $11 billion.
No one has attempted a buyout of that size in the U.S.
since 3G Capital agreed to buy H.J. Heinz Co. for more than $23
billion in 2013 -- and it had help from Warren Buffett.
Even so, there’s reason to be optimistic that private-
equity buyers will be busy with deals of all sizes. Interest
rates are still favorable, debt financing is still available and
that cash keeps building.
“You’re only in business as a private-equity fund to do
deals, so sooner or later, you’ve got to do deals,” said Mel
Cherney, a partner at law firm Kaye Scholer in New York who has
represented private-equity buyers. “It takes a lot of
discipline to stay within the parameters that you set for
yourself in terms of projected returns, but clearly there’s
pressure to put that money out there.”
For Related News and Information:
Carlyle to Buy Veritas for $8 Billion in Year’s Biggest LBO
Leveraged Loans Left Behind in M&A Boom as Buyout Firms Outbid
LBO Comeback Nears as PetSmart Leads Busy Two Months: Real M&A
Top deal news: DTOP <GO>
Real M&A columns: NI REALMNA <GO>
--With assistance from Leslie Picker in New York.
To contact the reporters on this story:
Brooke Sutherland in New York at +1-212-617-0448 or
bsutherland7@bloomberg.net;
Devin Banerjee in New York at +1-212-617-1534 or
dbanerjee2@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman