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: Open Season For Closed-End Funds

Aug 29 2014 | 10:00am ET

When Maury Fertig and Bob Huffman, former Salomon Brothers coworkers, launched...

Lifestyle

Och Funds Women In Finance Initiative At U-M

Aug 28 2014 | 3:01pm ET

Och-Ziff Capital founder Daniel Och and his wife have made a "generous donation"...

Guest Contributor

Looking Ahead: What’s In Store For Managed Futures?

Aug 22 2014 | 12:52pm ET

The last five years were phenomenal for investors in equity indices. Will the next...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

July/August 2014 Cover

The time was right

Commodities/Futures magazine launched at the precipice of a revolution in the futures industry—really a revolution in the idea of risk management—that would move it from a small niche industry to ...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.