The barbarians are back on top of the world - at least for now.
Private equity dealmaking broke global records in 2005 and will probably do so again this year, bankers and economists predict.
But as borrowing costs rise and competition from corporate bidders heats up, tougher times could lie ahead for buyout wizards such as Kohlberg Kravis Roberts, whose purchase of RJR Nabisco inspired the bestseller Barbarians at the Gate.
Private equity firms struck deals worth $396 billion US in 2005, a third straight record year and a 51-per-cent increase over 2004, according to Thomson Financial - outstripping a 39-per-cent rise in overall mergers and acquisitions business.
The buyout houses also raised $261 billion in new investment, London-based Private Equity Intelligence calculates, another all-time high.
"There's more money than ever before in private equity funds," said Neil Austin, a corporate finance partner at accounting firm KPMG. He noted that the funds are increasingly joining forces to take on bigger deals.
In the largest leveraged buyout of 2005, Apax Partners teamed up with Blackstone Group, Providence Equity, Permira Advisers and KKR to acquire Danish telecommunications operator TDC A/S for $12 billion.
The TDC buyout topped a European-led surge in take-private deals - those that ultimately remove the target company's stock from public trading.
While U.S. deals doubled, private buyouts of European targets jumped more than fourfold in value.
Overall, take-private deals rose by more than 150 per cent worldwide to $97.4 billion, beating the previous record of $85 billion in 1988, before inflation adjustment. The $31-billion Nabisco deal of that year remains the biggest ever leveraged buyout.
The take-private bonanza also eclipsed growth in take-public deals. Initial public offerings (IPOs) rose 20 per cent to $167 billion globally.
Private equity funds often use IPOs to take their profits. But the frenetic pace of buyout activity had also slowed new listings, Austin said. "Very often it's one private equity house selling to another rather than IPO'ing the business," he said.
Increasingly, the big funds are facing competition from industrial bidders for prime assets, amid a return of corporate appetites for acquisitions.
Midway through 2005, Providence, Blackstone, Permira and the Carlyle Group were getting close to acquiring Amena, Spain's No. 3 mobile network. Then along came France Telecom that - in the words of leading investment banker Paulo Pereira - "snatched the business away."
Pereira sees the $7.7-billion mobile-phone grab as a portent of new challenges facing the buyout specialists.
"The cashflow position of the corporates is stronger than it has been for the past four years and corporate confidence is back," he said. "So you have financial sponsors with unprecedented firepower, and you have the corporates back and very much wanting to transact."
The favourable debt environment that has underpinned the buyout boom is also changing. The latest in a swift succession of hikes brought the key U.S. interest rate to 4.5 per cent, its highest for almost five years.
