Private Equity Firms To Stoke M&A Deals In 2007

Dec 20 2006 | 10:02am ET

On the heels of a wave of fourth quarter activity that could make 2006 a record year for mergers and acquisitions, the transaction services group of PricewaterhouseCoopers believes 2007 could set a new record for deal volume with both strategic buyers and leveraged buyout firms expected to further accelerate activity.

Dry Powder At Work

In the past few days alone there has been a flurry of deals. Harrah's Entertainment said on Tuesday that its board accepted a $17.1 billion buyout offer from Apollo Management Group and Texas Pacific Group, which agreed to pay $90 per share for the casino operator; Biomet, the medical device concern, agreed on Monday agreed to be acquired by a private equity consortium for about $10.9 billion in cash; and real estate broker Realogy Corp. has entered into a definitive agreement to be acquired by an affiliate of Apollo in a transaction valued at approximately $9 billion.

In addition, Dallas-based ElkCorp, a manufacturer of roofing and building products, this week announced it has entered into a definitive agreement to be acquired and taken private by The Carlyle Group in an all-cash transaction valued at approximately $1 billion, including the assumption of approximately $173 million in debt.

According to Thomson Financial, deals involving U.S. companies announced through November totaled $1.3 trillion, compared with $1.2 trillion for all of last year. However, one must go back seven years for the all-time record for deal value and volume, which was $2 trillion in 1999.

Private equity firms will continue to be a major player in the U.S. deal market, according to Greg Peterson, a partner in PwC’s transaction services practice.

"So far this year, private equity has contributed 35% of all mergers and acquisitions involving U.S. targets, against 23% last year and the 10-year average of 17%,” he said. “With fund raising also hitting new highs, large private equity firms continue to have ample amounts of capital that needs to be put to work in the coming year."

Fuel For The M&A Fire

According to PwC, other factors influencing M&A activity in 2007 include p.e. funds formed to capitalize on strong fundamentals in the transportation sector. There will also be more competition among p.e. firms for middle-market deals. Next year, PwC says to look for continued use of middle-market companies as platforms for overseas acquisitions, an increase in the number of p.e. to p.e. deals, lower expected returns as deal prices move higher, and increasingly sophisticated deal structures.

As well, continued uncertainty in the automotive sector will make transactions in this space a strong possibility, especially given the amount of available liquidity and debt continuing into 2007.

The four most active sectors in 2006 were financial services, energy, telecommunications and healthcare, according to the firm. These sectors and others including utilities, financial services, technology and media and entertainment are well positioned for sustained M&A activity in 2007.


In Depth

Q&A: TCA Fund Management's Bob Press on Small-Cap Private Equity

Aug 25 2016 | 8:55pm ET

The emergence of private credit as a replacement for traditional bank financing...

Lifestyle

Kiawah: Island Reversal

Aug 24 2016 | 9:59pm ET

Looking for real estate investments but the typical real estate fare isn’t cutting...

Guest Contributor

Old Hill Partners: Embrace Illiquidity

Aug 9 2016 | 2:39pm ET

The age-old financial concept that higher yields are the result of higher risk and...