If there’s one lesson to take away from KKR’s latest mega-deal – the $29bn purchase of First Data on Monday – is that all those LBO rumors, however fantastical, are probably true, argues the WSJ’s Deal Journal.
It’s not that the sum is that stunning. It’s only the second-biggest buyout in history, and will probably soon be eclipsed, given the current global spate of M&A activity.
No, for Deal Journal, what’s stunning is how utterly predictable it all was. “Investors had been talking about it ever since First Data spun off its higher-growth Western Union division,” the Deal Journal says. “The credit markets also had been waiting for an LBO, with the price of insuring First Data’s debt going up as the six-month anniversary of the spinoff approached (for tax reasons, a deal couldn’t be struck until this milestone.)”
What’s more, analysts had reliably picked up First Data in their financial screening, with JPMorgan ranking it as its No. 3 target about six weeks ago.
The lesson? Simple: chatter, gossip and tittle-tattle about LBO targets is almost always suggestive of something substantive, especially given the amount of money that buyout firms have to play with. Morgan Stanley estimates private equity’s available funds run to $1,500bn.
It’s almost a mathematical certainty that the paranoid are probably right, Deal Journal says. And until you can prove otherwise, it’s best to assume that there’s a nugget of truth in even the far-fetched.