They may have to get creative – but with in excess of $150bn of equity in funds waiting to be invested, private equity firms are already adapting to the new realities in the marketplace to keep the fee machines running.
So says William Cohan, author of The Last Tycoons, which this week won the FT/Goldman Sachs businesss book of the year award.
There will be no quick return to the days of the mega-buyout argues Cohan. The days of easy credit have passed.
Even with Wall Street’s notorious affinity for amnesia, this latest period of excess will not be soon forgotten.
Among the updated rules of engagement is one that for modest sized buyouts banks are again providing financing, but at both higher interest rates and lower cashflow multiples than before.
So like sharks — which must keep moving forward or die — firms are finding creative ways to keep doing deals, Cohan adds. Bain brought in Huawei Technologies as a corporate partner in its deal for 3Com. They are reportedly paying only four times cashflow and together are putting up 50 per cent of the purchase price in equity.
Hellman & Friedman agreed to pay $2.6bn, or some 10 times 2007 estimated cash-flow, for Goodman Global, but the buyout firm is putting up around $1bn, or almost 40 per cent of the purchase price.
But these new deals are clear evidence that, for all the dire predictions of the ossification of the private equity machine, it is in fact alive and well and doing what it was designed to do: invest money in creative ways, seek outsize returns and collect fees.