Market Pressures Test Resiliance of Buyouts

This is the key figure re: the buyout boom. Bolding is mine. My guess is that someone is mispricing risk here...

The debt markets are a potentially bigger threat, though not clearly an immediate one. Investors have a huge appetite for corporate debt, in part because default rates are historically low, and are willing to accept relatively skimpy returns for it. In recent weeks, the additional interest that even the riskiest corporate bonds pay over Treasurys has fallen to a record low. This so-called spread, which is a proxy for investors' appetite for risk, is currently around 2.5 percentage points, according to Merrill Lynch data. It was at 3 percentage points at the start of this year, while in 2002 it stood at more than 10 percentage points.

From WSJ ($)

"Nobody fears failure"

From Dealbook article about PE lending getting "toppish"

At a conference in Tokyo earlier this month, the Carlyle Group's co-founder, David Rubenstein, admitted that with all the deal activity, it was inevitable that not all the investments were going to turn out well. "There hasn't been a failure for five years. We need to prepare people for the reality that some deals will fail," he said. He added: "Greed has taken over. Nobody fears failure."

Indian Buyouts not happening

In recent years, the world's largest private-equity firms have rushed to India. Their big idea: invest lots of money to tap into one of the world's fastest-growing economies. So far, it's not working out that way.

Even though billions of dollars have been raised for investing in India, hardly any big deals are being done. The few that have happened are much less sophisticated and lucrative than the deals that the private-equity business is renowned for world-wide.

Rather than full-blown buyouts -- where private-equity firms purchase publicly listed companies, take them private, restructure them and sell them two or three years later for a fat profit -- big private-equity deals in India so far have involved the purchase of small, passive stakes in companies. That's a strategy more common among plain-vanilla mutual funds.

...

There are a host of reasons for that. Among the biggest: Many of India's largest public companies remain family-controlled, and many families are reluctant to sell what they consider the family's crown jewels.

"Families are very aware of the growth opportunity they have. No one at this stage is willing to sell," says Ajay Relan, an India-based partner at CVC International, Citigroup's private-equity arm.

I find it interesting that where you have family control and therefore a total alignment of interests between managers and shareholders, buyouts are not happening at the same pace as when those interests are separated. It tells you something about the (inevitable) misalignment of management and shareholder interests in a professionally managed firm.

Full article from the Wall Street Journal is here ($)

Accredited bought for $400M

Subprime assets still being snapped up(WSJ, $)