2005 Breaks Records for Private Buyouts

Bankers and economists say this year may be another global record-breaker for private equity deals.

Private equity firms struck deals worth $396 billion in 2005, a third straight record year and a 51 percent increase over the year before, the Associated Press reported, citing Thomson Financial.

Another record was reached in the amount of money raised by buyout houses in new investment–$261 billion, Private Equity Intelligence of London said. A third of the cash comes from pension funds.


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Observers have also noted a 150 percent global surge in “take-private deals,” meaning the company's stock is removed from public trading. Last year's biggest take-private deal was a corporate takeover. Conglomerate Koch Industries Inc. of Kansas, agreed to pay $13.2 billion for Georgia-Pacific Corp., a paper products-maker, bumping out Cargill Inc. as the largest privately held U.S. company.

The buyout frenzy may slow in the U.S., some say, because interest rates and stock markets are ready to rise. "Private equity houses are going to have to work much harder to get the returns they need," said Neil Austin, a corporate finance partner at accounting firm KPMG. "We might have reached a sort of leveling-off."

Stephen Schwarzman, the chairman and chief executive of Blackstone, one of the biggest buyout houses, believes that private equity returns have peaked. "Nothing will carry on as swimmingly as it has,” he told the Sunday Times of western Australia. “It is illogical to assume things could continue as they have been. Returns inevitably will come down, but from so lofty a level as to be almost unbelievable."

Buyouts are lucrative for firms' chief executives. The Centre for Management Buyout Research said in a new study that a chief executive, on average, makes about £16 million from leading a £100 million-plus takeover of his company. A buyout of that size yielded its investors a £293.3 million profit, or a return of about 3.5 times the equity invested, the Times of London reported.

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