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Private-Equity Deals Slow Down
Bain Capital, a private-equity firm with major stakes in a range of companies, took Burger King public this year.
(By Justin Sullivan -- Getty Images)
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"Lenders watch carefully what's happening," said Marron, former chairman of PaineWebber Group. "You are seeing right now the beginning of a realistic assessment which will put the market back in balance."
Investors are also concerned that the debt private-equity firms have layered on their acquisitions and the big prices that they have paid may present too much risk, especially if a credit squeeze is looming that will raise the cost of borrowing money.
John K. Delanaey, chairman and chief executive of CapitalSource of Chevy Chase, which is active in credit markets, said credit was not drying up, but was making a healthy adjustment.
"We are seeing an adjustment in terms and overall risk appetite among debt investors," said Delaney, whose company makes business loans from $20 million to $250 million. "Good companies with solid capital structures will still be financed, which will allow buyouts to continue, but overall leverage and purchase multiples will probably adjust slightly. The past few years have seen a big risk transfer from private-equity firms to banks. . . .This should all lead to a healthier environment."
Carlyle's managing director and co-founder, William E. Conway Jr., cautioned in an internal memorandum in January that the highly liquid credit markets would not last forever and that the firm should pull back from high-risk deals."
"Frankly, there is so much liquidity in the world financial system, that lenders are making very risky credit decisions. This debt has enabled us to do transactions that were previously unimaginable," Conway wrote.
There are other signs that the rose may be fading. Blackstone, which completed an IPO of its management partnership last week, raising $4.1 billion, has seen its shares fall to less than the $31 offering price. Blackstone closed yesterday at $29.69 a share. Several other private-equity firms, including Carlyle, had been expected to follow Blackstone's path toward an IPO.
Staff writer Kathleen Day contributed to this report.
