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By Matthew Quinn
Two things stood out to me in Blackstone Group's recent deal to acquire Anheuser-Busch InBev's U.S. theme parks, which could be worth up to $2.7 billion.
First, wow, a multi-billion dollar buyout! In fact, it's only the third deal exceeding $2 billion worldwide and by far the biggest LBO involving a U.S. target.
Second, double wow, Blackstone is putting up to $1 billion into the deal!
That equates to a 37 percent equity contribution. And that's an interesting number.
Last year when the debt markets were essentially shutdown, if you wanted to get a deal done, you had to put in a lot of equity - 42.6 percent of the purchase price on average, the highest level ever, according to Standard & Poor's Leveraged Commentary & Data.
That was pretty much payback for the insanity of the prior three years, when equity contributions were in the low 30s after starting the millennium close to 40 percent.
I don't think anyone wants to return to the leverage of the buyout boom. After all, we're becoming a debt-averse country, right?
But we also probably don't want to live in the debt markets of 2008 or 2009 either.
Private equity has been impacted as much as anyone by the seizure of the debt markets. Year to date, there have been only 617 leveraged buyouts with a total value of $24.9 billion, compared to 1,195 deals worth $97 billion in the same period a year earlier, according to data from Thomson Reuters.
The ability for Blackstone, the biggest private equity fund in the world, to finance a multi-billion dollar deal with an equity contribution in the high 30s signals that the debt markets are receptive to sizeable buyouts. You can argue that LBOs are the spawn of the devil, but their activity can serve as a gauge of the openness of credit markets and it at least feels a little breezy in here.
Private equity no doubt needed to be tamed. And they've certainly been finding out that they're not the most popular guys in the debt markets or among their limited partners.
U.S. private equity firms raised $79.9 billion through 265 funds through the first three quarters of 2009, down 59 percent from the same period a year earlier, according to a report released Thursday by Dow Jones Private Equity Analyst.
"Even as a boost in public markets provided some respite to limited partners' liquidity issues, many continue to give general partners the cold shoulder," Jennifer Rossa, managing editor of Dow Jones Private Equity Analyst, said in a press release.
A return to leverage levels of at least pre-boom heights- in private equity and the economy as a whole - should warm things up.
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