Wall Street mystery: Where are all the buyouts?

There have been 132 buyouts so far this year, worth $12.6 billion, according to Dealogic. That compares with 148 deals worth $20.7 billion, through the same period last year, which itself was a slow year for dealmakers. At this year’s pace, 2012’s activity would be about 40% less than that of 2011 and 2010, and barely more than 2009’s $50 billion of deals.

The deal slowdown is a surprise because private-equity investors have a multitude of reasons to whip out their checkbooks for new purchases. For one thing, these firms have $435 billion of unused cash from their investors, according to Cambridge Associates. The last thing they want to do is give that back.

Meanwhile, the market for riskier debt is surging, making it easier and cheaper than any time in many months for buyout firms to finance leveraged buyouts. Banks are so eager to lend that private-equity investors say they can borrow 60% of new most new deals, up from 40% or so a year ago. For some prospective deals, LBO firms can borrow as much as 80% of the size of a buyout, and use just 20% of cash, private-equity investors say.

Helping matters: Many private-equity firms have succeeded in refinancing the debt of a number companies they already own, easing pressure on parts of their portfolio and encouraging them to bid up for new deals.

“There are other factors that should be causing more buyouts to occur,” including an improving economy, and fear that taxes may be raised next year, making it worthwhile for companies to sell out now, says Daniel Lubeck, managing director of Solis Capital Partners, a Newport Beach, Ca. fund focusing on smaller buyouts.

Adds Collin Roche, an executive at Chicago buyout shop GTCR: “You’d certainly expect a higher volumes than we are seeing, judging by the aggressive debt financing markets, positive economic growth, improvements in employment and greater enthusiasm in equity markets.”

So what gives?  Some say the run-up in stocks this year has put some buyouts on hold.

“Good, growing companies are receiving valuations equal to those at the peak, making deals at all sizes more difficult,” says Mr. Lubeck.

One dealmaker says his firm recently reached an agreement to buy a public company, but the company’s stock surged so much that his offer was deemed insufficient.

Still, private-equity honchos say more deals are on the way. As the Wall Street Journal has reported, at least 10 auctions of companies or company assets that could appeal to private-equity buyers are currently under way or are about to start, according to people familiar with the matter. Deals could be sized at $1 billion to $3 billion or more, these people say.

More activity likely will follow, private-equity honchos say. That’s because there usually is a lag between firming financial markets and Monday morning deal announcements, they say. As a result, more buyouts should take place in the weeks and months ahead, says senior executives of a number of large buyout firms.

Then again, dealmakers counting down to a wave of transactions based on improving pipelines long have been a common breed on Wall Street.

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