Has the private equity boom peaked? That was the hot topic at a Wall Street Journal conference on Wednesday, which hosted financial industry titans such as Henry Paulson, Lloyd Blankfein and Carl Icahn.
According to billionaire financier Icahn (left), the answer is yes, as shareholders are balking at selling companies too cheap.
“They’ve had a walk in the park for years, but now shareholders are waking up to the fact that we’re not going to sell it to you so cheap,” Icahn said. “And interest rates could start creeping up.”
Blankfein, who runs Goldman Sachs, the top advisor to buyout firms, had a different opinion. He thinks the leveraged buyout trend is not “going out of style.”
Wobbles are being seen in financing of some leveraged buyouts. Ahold’s U.S. Foodservce postponed the financial backing of $7.1 billion LBO due to weak market conditions, sources told Reuters Loan Pricing Corp on Tuesday.
Meanwhile, the shares of Blackstone are off their IPO high amid tax concerns and worries the private equity boom may be off its peak. It finished its first day at $35.06 but closed on Thursday at $29.69.
Other comments on private equity made at the conference::
Glenn Hutchins, co-founder and managing director of Silver Lake, said he didn’t foresee a blowup of the private equity industry although he expects the industry will see some unsuccessful deals. He added that he would not be worried until he saw underlying economic problems.
NYSE Euronext Chief Executive John Thain, when asked if he was concerned whether the private equity boom was becoming too heated, said the wider issue was the availability of capital that is allowing buyout firms to take companies private.
“I don’t think it’s a question of the private equity boom. There is a tremendous amount of liquidity available so there’s a lot of leverage that’s available at very low cost. So I think the place to be concerned is — what takes some of the steam out of the availability of liquidity? That’s much more the issue than the private equity … Liquidity is fueling private equity — but it’s really the excessive amount of leverage at very low cost.”
Richard Breeden, CEO, Breeden Capital Management and former chairman of the U.S. Securities and Exchange Commission: “What I do hope is that our market continues to be strong for private equity to generate value and also for larger shareholders in public companies to continue to create value. All markets and everyone benefits when new value is created.”
Stephen Lerner, assistant to the president of the Service Employees International Union, or SEIU, which represents 1.8 million workers: ”What we’re saying is what is happening in private equity is critical to the future of America and we need to have a conversation about how we make sure that workers and other people aren’t left behind by the buyout boom.”
(Additional reporting by Anupreeta Das)