billion of fees from leveraged buyouts in the first quarter, and busiest year so far for mergers and acquisitions.
billion, led by the record $44.1 billion agreement to acquire Dallas-based power producer TXU Corp.
, data compiled by Bloomberg show. The boom is making private-equity firms led by New York- based Kohlberg Kravis Roberts Co. and Blackstone Group LP the most lucrative part of investment banking for Wall Street.
beaten, particularly in the U.S., said Gavin MacDonald, the London-based head of European M A at Morgan Stanley, the second- biggest securities firm by market value.
A $100 billion deal ``isn t outside the realms of possibility, he said.
of 2006, while falling bond yields mean they can borrow enough to afford at least $2 trillion of acquisitions, according to Bloomberg data. At the same time, Blackstone and KKR are gathering $20 billion or more for new record-sized funds.
Robert Profusek, head of M A at New York law firm Jones Day, expects a $100 billion deal soon, possibly by year s end. ``It s a fascinating time, said Profusek, who has worked on LBOs by past year. Buyout firms typically borrow at least two-thirds of the purchase price of a target company.
Anheuser-Busch Cos., the brewer of Budweiser, and Dow Chemical Co. are realistic LBO targets, said Jack Ablin, who Private Bank in Chicago.
Both would be bigger than TXU. In Europe, even Rotterdam-based Unilever NV, with a market value of $88 billion, is within reach.
Dow Chemical s stock rose 3.
5 percent on Feb. 26 as by saying an LBO of the Midland, Michigan-based was possible.
Deutsche Bank AG s Jason West and Mike Baker said Dec.
1 that an LBO of Home Depot Inc., the world s largest home- improvement retailer, ``could work at $45 a share. The stock closed March 30 at $36.
74, giving the Atlanta-based company a market value of $72.4 billion. Home Depot also has about $11.
6 billion of debt.
``You re going to see bigger deals, said Kevin Conway, managing partner of New York-based Clayton Dubilier Rice Inc., which is purchasing ServiceMaster Co.
, the owner of Terminix pest control, for about $4.7 billion.
KKR today agreed to acquire First Data Corp.
, the world s largest processor of credit-card payments, for about $29 billion.
more than the record $12.2 billion they shelled out last year, estimates for fees from Thomson Financial and Freeman Co.
in New York. Investment banks collected about $1.6 billion of fees in the first two months of this year.
Unlike the typical corporate takeover, in which advisers charge only to arrange the deal, buyouts pay in many ways. In the $5.6 billion LBO of Hertz Corp.
, the world s biggest car-rental company, securities firms including Merrill Lynch Co. and Lehman Brothers Holdings Inc. earned fees for pledging to finance the transaction, providing interim loans, and refinancing them with longer-term debt.
Merrill, the world s biggest brokerage, made an additional $800 million by investing its own equity in the deal. The New Sachs Group Inc. and JPMorgan Chase Co.
for managing the initial public offering of Park Ridge, New Jersey-based Hertz in November.
Morgan Stanley, Goldman and Lehman each reported record first-quarter earnings, in part because of higher fees from arranging and financing leveraged buyouts. All three New York- deal.
firms, equivalent to a fifth of its investment-banking revenue. JPMorgan, the world s top corporate lender, was second, collecting $1.06 billion, Freeman said.
$1.07 trillion of transactions in the first quarter, up almost 10 months, followed by New York-based Citigroup Inc., JPMorgan, Lehman, Lazard Ltd.
and Morgan Stanley.
Takeovers are rising as the cost of debt declines. KKR co- billion takeover of RJR Nabisco Inc.
, including debt, in 1989, conference in Frankfurt in February. RJR Nabisco was the biggest LBO until last year when KKR led the purchase of Nashville, Tennessee-based HCA Inc., the biggest U.
S. hospital chain.
When KKR agreed to buy HCA, the debt-financing cost was about 8.
5 percent, he said.
``There s been a huge change in banking markets, the 64- year-old Bonderman said at the conference. ``Debt is cheaper and covenants are more relaxed.
It s never been easier to sell bonds for LBOs, said Eric Misenheimer, who manages $500 million of high-yield securities at J W Seligman Co. in New York. Hedge funds, under pressure to find above-market returns, are willing to take on the risk, so selling them off, freeing up capital to finance new buyouts.
Demand for high-interest debt, a key component in LBOs, is eat hunger in terms of the deals out there. Global rates are low and global demand is up more than ever.
to $218 billion, up 73 percent from the previous 12 months, Bloomberg data show.
of debt financing and takeover advice. In some cases, they re putting up a share of the equity, similar to a bridge loan, hoping to find investors who ll buy it later.
In TXU s case, JPMorgan agreed to a so-called equity bridge of $500 million, while Morgan Stanley and Citigroup each contributed $250 million.
Goldman and Lehman made direct equity investments alongside KKR.
Getting to $50 billion, $80 billion and beyond isn t as unrealistic as it seemed three years ago, said John Coyle, head JPMorgan.
situation that s probable with all the big funds being raised, and ``that s $12 billion right off the bat, Coyle said.
He bridges for a total of $20 billion.
``Lever that up and you can easily get to $80 billion, Coyle said. ``I don t think it s any leap of faith.
For the right situation, I don t think size is an issue.
Bigger hasn t always been better for buyouts. KKR took 15 size.
By targeting larger companies, the firms also make themselves targets for organized labor and politicians.
CVC Capital Partners Ltd. s bid for British supermarket transparency.
In the U.S., Service Employees International Union asked in a March 28 statement, ``How do workers share in the enormous wealth that private equity is creating?
and started a blog to track the Blackstone IPO.
piling on more debt. After First Data s agreement to be acquired by KKR today, Standard Poor s cut its credit rating to BB+ from A and said further reductions may be warranted.
Some bankers are skeptical a $100 billion deal can be done, chunk of their funds on a single acquisition. In the meantime, the cost of borrowing could increase, crimping returns.
more providers of capital, said Christopher Turner, a managing director at Warburg Pincus LLC in New York.
``And with more sources in the deal process, it impacts the dynamic of decision- making.
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