Domestic LBO activity, which dropped to a low of $10.4 billion early in 2009, has rebounded and will surpass $37 billion for the first half of this year, according to an article in The Deal, using data from research firm Dealogic.
Factors such as the end of the recession, a recovery in corporate earnings and the easing in credit markets have sparked the uptick. Some of 2010’s biggest deals so far have been secondary LBOs, in which one buyout firm buys a company from another. Among the biggest so far this year are Veritas Capital’s $1.5 billion sale of government contractor DynCorp International Inc. to Cerberus Capital Management LP; Huron Capital Partners LLC’s 18.7-fold gain selling Ross Education LLC to JLL Partners Inc.; and U.K. firm Bridgepoint Capital Ltd.’s lucrative $1.4 billion sale of Pets at Home Ltd. to Kohlberg Kravis Roberts & Co.
The stronger stock market has also provided a friendlier environment for 54 initial public offerings from private equity-owned companies in the U.S., in the past 12 months.
Sponsors are once again able to line up large amounts, $10 billion and more, in debt financing from banks and other lenders. But today, sponsors must also pony up 30% or more of a buyout’s value in equity and will have to settle for far less than the 8 to 9 multiples of EBITDA they targeted at the height of the market in 2007.
The private equity industry has gone through a vast “salvage” campaign over the past two years to cut costs and trim staff. According to The Deal, they simultaneously carried out extensive repairs on their companies’ balance sheets while getting lenders to extend loans’ due dates.
Is the worst behind us? Have things stabilized to the point where PE firms will begin hiring again? Add your comments below.
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Market indices indicate we can leave behind bad things of last recession. Many PE firms have learnt the tricks of cost-cutting via less staffing. Even when there are major LBO deals recently, the hiring might not pick up proportionately.