Leveraged Buyouts

With share prices at stomach-wrenching lows and a reasonably healthy high-yield climate, market watchers are anxiously waiting to declare a return to the era of the corporate raider. But instead, leveraged-buyout players have been strangely slow on the draw, while their cash has been piling up, uninvested.

To be sure, some vulturelike investors have saddled up. At press time, The Carlyle Group and Welsh, Carson, Anderson & Stowe were arranging as much as $1 billion in high-yield financing to fund their $7+ billion purchase of Qwest's directory unit. Following a number of similar deals this fall, it's no surprise that some observers were predicting a stampede of buyouts.

But experts say a return to a buying frenzy like that of the late-1980s is unlikely. For one thing, the current limited buying may be due more to pressure from fund investors to spend than to good opportunities. Uninvested LBO capital crept up to $123 billion in 2001, according to research firm Venture Economics. "It's tough to justify the amount of money they've raised if they're not investing it," says Robert Dunn, associate editor at Private Equity Analyst newsletter.

Leveraged buyers are also facing less-favorable terms. LBO firms parted with equity worth an average 41 percent of the deal price in the third quarter, according to Standard & Poor's Portfolio Management Data. "It's the highest in recent memory," says PMD's Marc Auerbach. In the late 1980s, the average fell to 10 percent.

Patient investors say that it's a seller's market. "I am seeing very few bargains — quite the opposite," says Frederick Iseman, chairman of $2 billion fund Caxton-Iseman Capital Inc.