Capital Markets

LBOs Surged in 2005

Sponsored deals — mergers and acquisitions backed by private equity firms that engage in buyout investing — reached a record total of $493.8 billio...
Stephen TaubDecember 29, 2005

Sponsored deals — mergers and acquisitions backed by private equity firms that engage in buyout investing — reached a record total of $493.8 billion worldwide in 2005, according to a preliminary report by Dealogic.

That record represents an 18 percent increase on the total for 2004. Dealogic added that this year, sponsored deals accounted for 17 percent of total global M&A activity.

Globally, the telecommunications sector led the way with volume of $78.7 billion, up a whopping 114 percent from the prior year. A large contributing factor was the $15.6 billion acquisition of Denmark’s TDC by Apax, Permira, The Blackstone Group, Kohlberg Kravis Roberts, and Providence Equity Partners — the largest-ever buyout in Europe and the second-largest globally. The computer and electronics sector accounted for nearly $53 billion of deals, up 64 percent from 2004’s volume.

In the United States, the volume of sponsored deals climbed 13 percent in 2005, to $217.9 billion, and accounted for 44 percent of global sponsor-backed activity. The computer and electronics industry was the most active; total volume reached $32.2 billion, up 59 percent from 2004.

Two $10 billion-plus U.S. private-equity deals were announced in 2005. At the top of the list: the $15.1 billion purchase of Hertz by a group including Clayton Dubilier & Rice Inc., The Carlyle Group, and Merrill Lynch Global Private Equity. The largest technology privatization was the $11.4 billion purchase of SunGard Data Systems by a consortium organized by Silver Lake Partners that also included Bain Capital, Blackstone, Goldman Sachs Capital Partners, KKR, Providence, and Texas Pacific Group.

There were also 39 deals announced between $1 billion and $10 billion. Due to the large number of big-ticket buyouts, the average deal size was a record $182.9 million.

Meanwhile, another large deal is reportedly in the works. The New York Times reported that Affiliated Computer Services may be bought for $8 billion by a group of private-equity firms including Texas Pacific, Bain, and Blackstone.

As for 2006, USA Today noted it could be a busy year for buyout firms cashing out their holdings, selling to other private-equity firms, or taking companies public in the IPO market.

Indeed, according to Dealogic, in 2005 there were 81 sponsor-backed initial public offerings, worth $18.9 billion. These offerings accounted for 51 percent of total IPO volume, compared with 32 percent in 2004.

(For further coverage of North American dealmaking in 2005 and a look ahead to 2006, see “A High-water Mark?” in the January issue of CFO, to be published January 1.)