The Buyout Boom, Now Even Boomier

From Dealbook Excerpts

At $281 billion, U.S. private equity deals have more than tripled from a year ago, boosted by the recent buyouts of Alltel, First Data and others.

In the United States, leveraged buyouts account for 35 percent of all activity, up from about 16 percent last year.

Total merger-and-acquisition volume so far this year is $2.18 trillion, 77 percent above last year at this time. In the U.S., volume is at $802 billion, up 54 percent. In Europe, volume is up 129 percent, at $983.6 billion

This year-on-year comps are coming on another HUGE year in 2006. When does this trend line stop??

oh, oh, another market peak indicator

Merrill Lynch said Monday it would buy a minority interest in GSO Capital Partners, a hedge-fund firm with about $8 billion in assets under management

GSO does leveraged lending. Merrill does not tend to be *early* to cycles.

Press release here

Did Merrill, Morgan Stanley Overpay?

From WSJ $

Some of Wall Street's biggest players bet heavily on the subprime mortgage sector last year just as it started to head south. Now, investors are questioning whether the firms overpaid to get into a sector that has become less profitable.

Last year, Merrill Lynch & Co. and Morgan Stanley bought subprime mortgage lenders, with Merrill paying $1.3 billion for First Franklin and Morgan Stanley acquiring Saxon Capital Inc. for $706 million.

Matthew Howlett, a mortgage-sector analyst at Fox-Pitt, Kelton, estimates that the pace of subprime lending and the volume of securities backed by such loans may fall by nearly half this year. As a result, Mr. Howlett believes Merrill may have overpaid for First Franklin by $600 million. He doesn't believe Morgan Stanley overpaid as much for Saxon because that business includes a mortgage-servicing platform, which he believes has held more of its value.

Umm, no kidding. We said it at the time that this was a borderline insane decision (buying before the market collapse)

Let me explain how my guess is that this works:

1. You are an MD at ML

2. Your bonus depends on this year's securitization volume

3. Securitization volume starts falling

4. You convince your boss that to use ML's balance sheet (whose capital cost is probably not charged against your bonus calculation) to buy a subprime lender to maintain your flow

This misalignment of incentives is the generous description of what happened...

China to invest in Blackstone

You don't see that every day. Of course the historic track record of cash rich foreigners investing in prestigious US assets is mixed (see: Japanese, late 80s)

China has agreed to take a $3 billion stake in U.S. private-equity giant Blackstone Group, which marks an unusually aggressive start to the country's long-anticipated campaign to diversify how it invests massive foreign-exchange reserves.

Under the terms of the deal, a soon-to-be-established state foreign-exchange investment company will buy nonvoting shares in Blackstone, according to a joint press release. The move comes as private-equity firms have faced problems ramping up their own investments in China. The state investment company agreed not to sell the shares for four years. According to a person briefed on the deal, the investment company also agreed not to invest in a competing private-equity firm for one year. At the end of the four-year lock-up period, the company may begin selling one-third of its shares a year.

From WSJ $