* Flurry of exits enhanced deal activity
* Private equity-backed M&A more than doubles
By Jessica Hall and Denny Thomas
PHILADELPHIA/HONG KONG, June 25 Buyout funds
are making a comeback, scouring deals from Australia to America
after nearly two years of virtual shutdown, but private
equity-backed M&A volumes remain far short of the boom times.
Bankers say that while a return to the mega-deals of
2006/07 is still some time away, there is now a steady flow of
transactions, with private equity activity picking up in the
As of June 22, private equity-backed mergers and
acquisitions in the second quarter were up 125 percent from a
year earlier to $40 billion, and were up by a third from the
first quarter, Thomson Reuters data showed. For the year, such
deal totaled $70 billion, more than double a year earlier.
The general stock market recovery early this year
encouraged PE funds to push through listing plans, while a
freeing up of debt markets opened up markets for secondary
sales to other buyout funds.
But with the European debt crisis denting the stock rally,
there are concerns about whether PE activity can keep up the
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Graphic on regional M&A activity:
Reuters Insider: link.reuters.com/ged93m
"M&A markets are fragile. There was a slight loss of
momentum in the second quarter. Coming off year-end into Q1,
momentum was good," said Jeffrey Kaplan, global head of mergers
and acquisitions at Bank of America Merrill Lynch.
"There was strong strategic activity and active PE bidding,
much of which slowed down. EMEA has seen the biggest slowdown,"
he added, referring to Europe, the Middle East and Africa.
The $70 billion of PE-backed deals this year through June
22 compares with the record $542 billion in the first half of
Availability of easy credit is the key for a pickup in PE
buying, and bankers say the U.S. market has seen the most
dramatic improvement in financing, driven by large financial
Europe has lagged in its ability to leverage because it is
more of a bank-funded market.
Overall, choppy equity markets and the rising cost of debt
funding will make private equity dealmaking more of a
challenge, though bankers say the market for mid-sized deals
should open up.
"It will be a while before we get back to mega-deals," said
Mike Netterfield, head of financial investor coverage for Asia
"We're seeing some larger deals, but it'll be a while
before we see the days of the TXU, HCA kind of deals," he said,
referring to big U.S. private equity deals involving the likes
of TXU, now Energy Future Holdings, and hospital operator HCA
"The liquidity isn't quite there just yet for mega-deals."
While the sector has offered some hope to investors this
quarter, it has also brought disappointment.
A $15 billion buyout for payment processor Fidelity
National Information Services (FIS.N) was among the deals that
failed after differences over price.
Other public-to-private transactions are in process,
Australian hospital operator Healthscope Ltd HSP.AX has
had bids from two private equity consortia in a deal valued at
about $1.5 billion.
"For private equity, $3-$5 billion will be a large deal,"
Merrill's Kaplan said.
"The Street has been working on $10-$12 billion deals, but
there have been concerns about underwriting and spreading the
risk. We don't want to discount the fact that large deals can
get done, but we see $3-$5 billion as the large deals now."
Among prominent exits this quarter, Bain Capital and
Kohlberg Kravis Roberts & Co KKR.AS have filed for an IPO at
HCA, as has retailer Toys R Us, again owned by Bain.
More exits are likely as PE funds aim to cash out of some
pricey investments made at the height of the M&A frenzy in
Another trend to watch out for over the coming quarters is
cashed-up PE funds chasing minority stakes in India and China,
the fast-growth Asian emerging powerhouses where
public-to-private deals are hard to come by.
"You're still going to see minority deals getting done. In
China and India you always get a lot of minority deal
opportunities, where there aren't that many control situations
available," said RBS' Netterfield.
"You're in a situation where stock markets are choppy and
it's hard to get public-to-private deals done. So minority
deals are easier."
(Reporting by Jessica Hall in Philadelphia and Denny Thomas in
Hong Kong; editing by Ian Geoghegan and John Wallace)