ABOUT CONTACT PRIVACY POLICY ADVERTISE DMCA TOS      

FRONTPAGE NEWS VALUE INVESTING EXCEL ADD-ON PREMIUM 

BUSINESS

Goldman Asks Where Have All The LBOs Gone

September 9, 2014 at 4:34 pm by ValueWalk Team

A
new report from Goldman Sachs Equity Research highlights that M&A activity remains brisk
in 2014, but that leveraged buyout sector is apparently moribund. The September 9th report
notes that sponsor activity (LBOs) represents just 20% of the total U.S.merger and
acquisitions activity for the year to date, nearly tying for the lowest amount of LBO activity in the prior
decade.

As Goldman Sachs analysts Jessica Binder Graham and colleagues point out, to date in 2014 there has
been just $3 billion of public-to-private transaction volume, compared to over $80 billion in 2013 and
an average of $75 billion in 2004 through 2013. Moreover, there have been no “take-private” deals
over $5 billion in 2014 compared to four deals in 2013 and 17 in 2007.

Why so few LBOs?

Although there is no one reason that M&A activity remains brisk but not LBOs, the GS report suggests
one of the primary factors is the relatively high current valuations of most public companies today.
The stock market has been on a nearly six-year tear, and PE simply isn’t willing to pay too much.
Moreover, corporate buyers often also enjoy the bene ts of synergy between the two organizations, so
they are frequently willing to pay more than PE rms.

Binder Graham et al. highlight three reasons LBOS are few and far between right now. “1) Valuation
upside – the market’s median multiple is near all-time highs and has outpaced LBO purchase price
multiples; 2) EBITDA growth – sales growth is slowing and margins are near peaks, o ering less
opportunity for substantial operational improvement; and 3) nancial engineering – average equity
contributions are now 35% (vs. pre-crisis average of closer to 30%), implying less scope to lever up.”

Ex-US deals seem to be the focus for private equity

The GS report also notes that most PE rms today seem to be focusing on global, that is, ex-U.S., deals.
According to the Goldman analysts, “Global deals appear a bigger focus, with both KKR & Co. L.P.
(NYSE:KKR) and The Blackstone Group L.P. (NYSE:BX) having stating that 50% or more of their recent
investments have been outside of the United States. Partnering with non-PE rms also appears to be a
new trend for large deals this cycle.”

Market pullback likely catalyst for LBO activity

Binder Graham and colleagues argue that a decent pullback in the market appears to be the most likely
catalyst to drive new LBO activity. Given that PE buyout funds currently hold more than $450 billion in
dry powder (70% raised in the last three years), a pickup in LBO activity is highly probable if stock
prices just fall enough for more deals to make economic sense.

 Facebook  Twitter

Author: ValueWalk Team

ValueWalk Comment Policy

No spam, scams, illegal activity, profanity, personal info etc.
Please read our Comment Policy before commenting. 
2 Comments ValueWalk 
1 Login

 Recommend t Tweet f Share Sort by Newest

Join the discussion…

LOG IN WITH
OR SIGN UP WITH DISQUS ?

Name

Alex • 4 years ago

Not sure how this article is accurate considering Cerberus announced buyout of Safeway in Jun 2014...

http://www.bloomberg.com/ne...
△ ▽ • Reply • Share ›

Alex Keyton • 4 years ago

Totally misleading article. Look at Private LBO's vs. Public to Private. PE is extremely active this year....
Completely irrelevant if they aren't buying publicly traded companies. BTW, I just helped my PE client buy a $1.5
billion company last week and that's 8 buy-side deals for them YTD.
△ ▽ • Reply • Share ›

✉ Subscribe d Add Disqus to your siteAdd DisqusAdd 🔒 Disqus' Privacy PolicyPrivacy PolicyPrivacy
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We
respect your privacy no spam ever

Email Address

Send me ocassional third party o ers

Yes No

Send me the ValueWalk Personal Finance

newsletter, powered by ArcaMax
Yes No

Subscribe

LATEST NEWS

The Last Bastion Of Human Trading Is

Giving Up To The Algorithmic Overlords

Maui Land & Pineapple (MLP) Investment

Thesis – Papyrus Capital

Russia Hosts Peace Talks With

Afghanistan

Ron Baron: Stocks & GDP To Double In 10

Years, With Tesla Going To $1T

Third Point 3Q18 Investor Letter: The

Good Place