DealZone

(Recasts lead)

If a deal can’t get done with the backing of Canada’s pension fund and capitalism’s mightiest bank, then the leveraged buyout market would truly be dead.

So it is with limited fanfare that DealZone welcomes the buyout of IMS Health by Canada’s public pension plan and Goldman Sachs as a sign of the market’s return to health. Green shoots in the LBO patch are hardly growing all jack-and-the-beanstalk, but putting together $4 billion for the prescription drug sales data provider is not just ice on the moon either.

Excluding debt, the $22-a-share cash deal is the biggest leveraged buyout since Bristol-Myers Squibb sold its ConvaTec unit to Avista Capital and Nordic Capital just over a year ago for $4.1 billion, according to data from Thomson Reuters.

Financing markets and general optimism have improved from the nadir of the crisis, and debt, if you can find it, is hardly expensive, with core rates at zero. But $4 billion pales in comparison with strategic deals in the health space this year, such as Wyeth’s $68 billion union with Pfizer.

It is safe to say, though, that had the IMS deal foundered, it would have been a far worse signal for LBOs than its success means for the relative health of the business.

A number of private equity firms in Europe are going back to investors for more money to fix over-extended balance sheets and fund add-on acquisitions for companies in their portfolio.

Private equity’s world has turned upside down since the start of the credit crisis. All the stats show that deal flow has dropped off a cliff and those deals that have got done are smaller and the equity cheques larger. At the same time,  restructuring situations are mounting as firms face the uneviable choice of injecting more equity or face losing their investments to the banks.

The upshot is that buyout funds raised in rosier times are no longer suited to the current environment, if indeed they have any capital left at all.

Nycomed, the Swiss drug company, already has 4 billion euros or so of net debt and some pretty junky single-B credit ratings. But that’s not deterring the private-equity owned outfit from plotting a bid for the drugs business of Belgium’s Solvay, even in these leverage-phobic times. As I wrote earlier:

“Switzerland’s Nycomed plans to draw on buoyant junk bond markets and new cash from its private-equity owners to fund a buyout of Solvay’s drugs unit, people familiar with the matter said.

“Such a structure would allow Nycomed — which already has billions of euros of syndicated loans — to bypass the moribund leveraged loan market and would create a group with some 6 billion euros ($8.6 billion) in yearly sales.”