And then the Seagate deal crashed and I was back to reality. But really, November was a great month for LBOs. In fact, it was the best month for leveraged buyouts, by monthly volume, since July 2007, according to Thomson Reuters.
There were 76 leveraged buyouts in November with total volume hitting $21.3 billion. Two of the largest LBOs last month included the $5.21 billion offer to buy Exco Resources from CEO Doug Miller, Texas energy investor T. Boone Pickens and PE firms Oaktree Capital Management and Ares Management. The other big deal was the $5.15 billion proposal to acquire Del Monte Foods by a KKR-led group. Barclays, which advised Del Monte Foods, is the top LBO adviser so far this year with 31 deals valued at $51.2 billion, Thomson Reuters said.
Obviously, much of the increase in LBOs is due to the rebound in the debt markets. Leverage is much easier to secure. There’s also a backlog of companies up for sale given the low volume of M&A over the past few years. And some companies are eager to to sell before the expiration of the Bush tax cuts.
“Debt is very available and very cheap while valuations are still somewhat beaten down,” one PE exec says.
“There is a lot of money searching for yield,” another buyout source says.
But there is one interesting factoid. As LBO values rise, equity checks appear to be dropping. In November, TPG and Leonard Green agreed to buy J. Crew for roughly $2.9 billion.
J. Crew has secured $1.85 billion in debt financing as part of the deal, according to Thomson Reuters Loan Pricing Corp. This means the PE firms are putting in about 40% equity. This is down from from the 50% equity contributed by PE firms in the year’s other big LBO, LPC says.
In February, TPG and the Canadian Pension Plan closed their $4 billion buy of IMS Health (the $4 billion doesn’t include debt). The IMS transaction was one of the larger LBOs of 2010. This means that as the deals get bigger, PE firms are putting less equity.