Thursday, November 7, 2013

Changing dynamics in the US buyout market

Though a bit dated, the following chart shows significant changes that have occured in the US leveraged buyout market since the financial crisis. Taking public companies private is no longer in vogue, as private equity funds continue to work through some of the huge and not-so-successful bubble-era transactions (such as KKR's position in TXU - see story).

Source: Bain & Company, Inc.

Instead, the focus is back on the types of transactions that were dominant some 10 years ago - the so-called "carve-outs". These are businesses owned by large firms that may be considered non-core, prompting these large firms to shed them. Valuations for these carve-out businesses tend to be more attractive, making them ideal targets for private equity firms.
Bain: - US-focused PE funds were active acquirers of non-core businesses spun off by large public companies looking to consolidate without diluting shareholder value. Carve-outs were popular with acquirers because, unlike purchases of privately held companies or public-to-private conversions, which commanded steep control premiums, they could be purchased at a price very near what the former parent company traded for. They accounted for 41% of total buyout deal value in 2012—up from just 25% in 2011.
A good recent example of such a transaction is Carlyle's deal to buy DuPont's car paint business ("performance coatings" business makes paint for cars and other industrial uses) for $4.9 billion, as DuPont undergoes its restructuring  (see story).
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