Re: [A-List] FT: The end of LBOs (?)

["The Buffalo In Da' Midst" <the.buffalo.in.the.midst@xxxxxxxxx>]

As with idiots, they'll just build a better one...

On 7/27/07, Sabri Oncu <sabri_oncu@xxxxxxxxx> wrote:
> FT.com
> The end of LBOs
> Friday July 27, 2:40 pm ET
>
> If you believe the bears, a new "asset class" is being exposed as just another
> management and financing technique, and a dubious one at that. But would a
> freeze in leveraged buy-outs be as bad for stock markets as some fear? The case
> that equities price in the hope of LBOs across the board is actually pretty
> weak.
>
> Private Equity Intelligence provides an estimate for "dry powder" - committed
> equity as yet unspent - for buy-out funds. To this can be added the likely
> capital raised by private equity outfits on the road now to produce a total of
> $548bn. It is reasonable to assume that this money is spent on takeovers that
> are three-quarters debt-financed and occur at a one-third premium to the stock
> market price.
>
> On this basis the total LBO takeover premium due to be paid to stock market
> investors is $506bn. This is only 2 per cent of North American and European
> market capitalisation. Of course, this might be concentrated in specific areas
> - smaller capitalisation stocks for example - and in certain countries such as
> the UK. But if investors are accurately discounting the immediate pipeline of
> activity, anticipated LBO takeover premiums are not heavily distorting equity
> prices in aggregate.
>
> Might stock markets instead be discounting a much longer golden era of near
> indiscriminate buy-outs? This is what fans of private equity predict: the
> underwriters' research on Fortress Group, for example, is comically bullish, in
> one case forecasting assets under management of $23bn top $260bn by 2016.
>
> Yet it is doubtful that public equity investors accept this kind of "new
> paradigm" argument. If they believed the conditions were ripe for a sustained,
> massive rise in leverage, big quoted companies would not have prudent balance
> sheets and be valued on earnings multiples that imply profits may be near a
> cyclical peak. Public equities most likely reflect the view that the LBO boom
> is a cyclical phenomenon of finite duration and questionable wisdom.
>
>
>
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