Despite recent reports that deals like Skype and Warner Chilcott have signaled the return of lenders willing to finance large buyouts, guys in the trenches are saying “not to fast.”
In a panel titled, “The Changed Look of Wall Street” at the second day of the Private Equity Analyst conference, panelists painted a tough reality: leverage is not comin’ back anytime soon.
Said John Coyle, head of Permira’s New York office: “Until the banks feel comfortable that they have enough capital and until the well runs dry on non capital businesses, they aren’t even thinking about LBOs.”
In 2010, he said, the banks will eventually begin to look to take on more risk once they accumulate enough capital. That’s not the reality today. He added that people may be excited about Skype but, it’s still relatively small, with around 50% equity. And Warner Chilcott, the largest credit facility for an LBO this year, was actually a delevering transaction. The company, backed by Bain Capital LLC, Thomas H. Lee Partners LP, and the buyout units of JPMorgan Chase & Co. and Credit Suisse Group, actually went from 4x leverage to 3x in its acquisition of Procter & Gamble’s prescription drugs business, Coyle said.
Christopher Birosak, MD at BAML Capital Partners weighed in. (Don’t recognize the firm name? It’s the combination of Bank of America and Merrill Lynch’s buyout arms.) “We’re seeing leverage, yes, but its corporate leverage, not LBO leverage.” He added that the terms and conditions are so different that even though some deals today have debt, the conditionality implies that the equity is basically on the hook for the entire deal.
Roger Hoit, an MD at Moelis & Company, said he’s seen far more growth-oriented buyouts than traditional LBOs, where you can get equity-like returns without leverage.