To avoid overpayment, private equity fund managers say steering clear of traditional buyouts necessary

February 26
10:39 AM 2014

In order to avoid paying dearly for Western acquisitions, private equity fund managers say it's necessary to move past conventional buyout deals, Reuters reported.

Although private equity firms have given back hundreds of billions of dollars to their investors in the past couple of years by selling assets, the industry still has $817.9 billion that it can deploy towards investments. According to research firm Preqin, this "dry powder" is the highest that the industry has had since 2008, the report said.

There is still a high amount of "dry powder" left even if dealmaking has already increased. Data from Thomson Reuters showed that the volume of leveraged buyout deals, which included the debt of the acquired firms, reached $174.2 billion last year. This represented an increase from figures posted in 2012 when the same deals reached only $136 billion, the report said.

Buyout bosses who spoke at the SuperReturn International conference held in Berlin lamented that increasing rivalry also translates to increasing prices for European and North American firms. However, they remained positive that putting their focus on niche approaches and enhancing the value of these firms through improvement could prevail over bubbly valuations, the report said.

Leon Black of Apollo Global Management said their rate of investments was not keeping up with their asset sales. However, he said that they were still getting their hands busy cooking new deals. Black added that his firm's leaning towards complex deals allowed it to avoid competitive sales. He added that strategies which included forming new firms from the divestments of divisions that big companies don't anymore want and using debt-for-equity swaps to take over embattled firms were just some of the ways that Apollo employed so it would not overpay for acquisitions, the report said.

Private equity firms are also seeking partnership deals with firms as deal values increase so they won't have to pay top dollar for an outright acquisition, the report said.

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