The Private Equity Boom has not Sedated

With the worlds largest banks participating in the LBO (Leverage Buy Out) funding, the PE (Private Equity) boom was leading the global financial liquidity. Earlier in an LBO, the buyer issued junk bonds to pay for the acquisition, however today it are the PE firms who are doing the LBO financing.

The turmoil caused by Subprime disorder, under normal circumstances should have been a ground frail enough to restrain the large PE firms from making any further investment. However some of the large PE firms like KKR and Carlyle Group are among more than 50 PE firms looking to raise atleast $52 billion LBO funds, apathetic towards the existing crunch in the credit market.
While the activity of the PE firms has slowed, they still are eager to raise fresh funds for considerable buying opportunity being created due to the price falls in the companies they buy, brought by the credit market furor.
Despite the difficulties in the credit market, the willingness to invest in buy-out funds from long-term investors, such as pension funds and insurance companies does not seem to subside.
The KKR IPO which was scheduled to raise $1.25 billion this year seems to be slightly difficult due to the mortgage crisis, which is worsened more with KKR booking losses worth $400 million in its sale of $5.1 billion in residential mortgages.

However amidst all woes, KKR is seeking to raise $10.3 billion for its new European buy-out fund. Last week, Blackstone closed the world’s largest buyout fund at $21.7 billion. Similarly, couple of days back the size of buyout fund closed by KKR was $16.5 billion.

In their quest to acquire stakes in the companies, not only have the various PE firms (especially Blackstone and KKR) been constantly raising the cost of acquisition for each other but also seem to be heading towards a self destructive mode where delivering returns to customer expectations’ would become increasingly difficult due to the very high cost of purchase.


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PE funds raise money from rich investors who are willing to play with high risk for a fixed period. Followed by which they buyout undervalued public companies and take them private. Over the next 4 to 6 years, these funds work to unlock the value in these companies by cutting cost and improving operations.
The restructured companies are then sold or publicly listed again, and the funds return their capital with profits to their original investors.
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