NEW YORK: Bankers brought in about $2 billion in fees from leveraged buyouts in the first quarter, and that is just a fraction of what they are assured of earning this year, the busiest so far for mergers and acquisitions.
The value of announced leveraged buyouts in the quarter surged 40 percent from a year ago, to $188 billion, led by the record $43 billion agreement to acquire TXU, the Dallas-based power company, data compiled by Bloomberg show. The boom is making private-equity firms the most lucrative part of investment banking for Wall Street.

"What was deemed to be possible a year ago, when we thought the limits were $25 billion to $30 billion, has been easily beaten, particularly in the U.S.," said Gavin MacDonald, the London-based head of European mergers and acquisitions at Morgan Stanley.

A $100 billion deal "isn t outside the realms of possibility," he said.
Buyout firms have raised more than $210 billion since the start of 2006, while falling bond yields mean they can borrow enough to afford at least $2 trillion of acquisitions, according to Bloomberg data. Buyout firms typically borrow at least two-thirds of the purchase price of a target company.

Blackstone and Kohlberg Kravis Roberts are gathering $20 billion or more for record-sized funds. KKR on Monday agreed to acquire First Data, the world s largest processor of credit-card payments, for $29 billion, the second-biggest leveraged buyout so far this year.
Robert Profusek, head of mergers and acquisitions at the Jones Day law firm in New York, said that he expects a $100 billion deal soon, possibly before the end of this year.

"It s a fascinating time," said Profusek, who has worked on buyouts by firms including Bain Capital and Apollo Management in the past year.
Anheuser-Busch, the brewer of Budweiser, and Dow Chemical are realistic buyout targets, said Jack Ablin, chief investment officer of Harris Private Bank in Chicago. Both would be bigger than the TXU deal.

In Europe, even Unilever, based in Rotterdam, with a market value of $88 billion, is within reach.
Dow Chemical shares rose 3.5 percent on Feb.

26 as speculation mounted that a $54 billion buyout was looming. Home Depot, the largest home improvement retailer in the world, is another possible target. The Atlanta-based company has a market value of about $70 billion and has nearly $12 billion of debt.

"You re going to see bigger deals," said Kevin Conway, managing partner of Clayton Dubilier Rice in New York, which is purchasing ServiceMaster, the owner of Terminix pest control, for about $4.7 billion.
Leveraged buyout firms probably will pay Wall Street even more than the record $12.

2 billion they shelled out last year, based on the current rate of deals tracked by Bloomberg and estimates for fees from Thomson Financial and the financial consulting company Freeman in New York.
Unlike the typical corporate takeover, in which advisers charge only to arrange the deal, buyouts pay in many ways. In the $5.

6 billion buyout of Hertz, the world s biggest car-rental company, securities firms including Merrill Lynch and Lehman Brothers earned fees for pledging to finance the transaction, providing interim loans, and then refinancing them with longer-term debt.
Merrill made an additional $800 million by investing its own equity in the deal. The firm then split $56 million more with Lehman, Goldman Sachs Group and J.

P. Morgan Chase for managing the initial public offering of 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 firms are advising KKR and Texas Pacific Group on the TXU deal.
Goldman received $1.18 billion in fees last year from buyout firms, equivalent to a fifth of its investment banking revenue.

J.P. Morgan was second, collecting $1.

06 billion, Freeman said.
Leveraged buyouts are leading the record pace for mergers and acquisitions this year: $1.07 trillion of transactions in the first quarter, up almost 10 percent from a year earlier, Bloomberg data show.

Goldman worked on the most leveraged buyouts by value during the first three months, followed by Citigroup, JPMorgan, Lehman, Lazard and Morgan Stanley.
Takeovers are rising as the cost of debt declines. The co-founders of KKR, Henry Kravis and George Roberts, paid interest of 14 percent on loans and bonds when they engineered the $31.

3 billion takeover of RJR Nabisco in 1989, said David Bonderman, a co-founder of Texas Pacific, at an industry conference in Frankfurt in February.
Last year, when KKR agreed to buy HCA, the biggest U.S.

hospital chain, the debt financing cost was about 8.5 percent, he said.