Loading up on dry powder

May 30, 2008

cash.jpgThe days of the eye-popping LBO may be over, but buyout shops are still raising eye-popping amounts of cash.

So far in 2008, private equity firms have raised nearly $100 billion, according to Thomson Reuters data. Buyout-focused funds have raised $65.1 billion, while others that are not focused on buyouts, such as real estate and energy funds, have raised $34 billion. In all $99.2 billion has been raised from 134 funds, Thomson Reuters data shows.

But overall acquisitions by financial sponsors are down 78 percent and global issuance of leveraged syndicated loans is down 68 percent, compared with the same period last year.

So where is the money going?

Minority stakes for one. Financial sponsors have spent $12 billion  so far this year on building up minority stakes in listed companies, up 86 percent from the same period in 2007, according to the data.

Financial services companies, which have been hit hard by the credit crunch and looking to raise funds, have attracted a lot of that cash. The volume of convertible offerings by financial issuers hit an all-time high in May with nearly $20 billion in new issues, according to the data.

The top 10 minority stake acquisitions so far this year include TPG’s $2 billion investment in Washington Mutual, KKR’s $1.25 billion in Legg Mason and WL Ross’ $750 million in Assured Guaranty.

But that still leaves a lot of unused funds with private equity firms, and they are hunting for places to deploy that money. 

“There is so much in the pipeline right now that we expect the back half of 2008 to be more active than the first half of last year,” according to Robert Profusek, chair of Jones Day’s M&A practice.

Profusek expects the activity to be higher in terms of the number of transactions, though, and not necessarily in the dollar amount, as Clear Channel-like mega buyouts may not happen.

Photo credit: Reuters

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