Buyout Funds Feeling Their Oats

Trizec Properties, International Paper, Kinder Morgan attract big-dollar attention.
Stephen TaubJune 5, 2006

Following two more huge deals announced on Monday, 2006 is shaping up as one of the biggest years ever for management-led buyouts.

Brookfield Properties and The Blackstone Group will team up to buy real estate investment trust Trizec Properties, as well as Trizec Canada, in a transaction valued at $8.9 billion. Trizec specializes in the ownership and management of office properties.

Also on Monday, International Paper agreed to sell its coated and supercalendered papers business to an affiliate of Apollo Management for roughly $1.4 billion.

Just last week, a consortium including Kinder Morgan company managers, Goldman Sachs, American International Group, and Carlyle Group made a $13.5 billion bid for the oil and gas pipeline group. Including about $8 billion in debt, the $20.4 billion deal would be the largest-ever management buyout if it is accepted by Kinder Morgan.

The $30 billion-plus acquisition of RJR Nabisco by Kohlberg Kravis Roberts, completed in 1989, still stands as the record.

According to recent research by Thomson Venture Economics and the National Venture Capital Association, 42 buyout vehicles raised $24.9 billion in the first quarter of this year — down from the fourth quarter but a significant increase compared with the first quarter of 2005.

The largest: Bain Capital IX ($8 billion), TA Associates (just over $4 billion, in two funds), ArcLight II ($2.1 billion), and GS Mezzanine Partners 2006 ($1.25 billion).

“Buyout firms continue to raise funds at a remarkable pace, absorbing what appears to be a very strong investor demand for alternative asset classes,” said Thomson Financial senior analyst Daniel Benkert, in a statement accompanying the research. “Buyout funds have historically raised two to three times more dollars than venture funds. However, we are now seeing that number creep up to four times as much. And with several other mega buyout funds in the process of raising commitments with a combined target of well over $40 billion, the year ahead looks to be a repeat of last year.”