The Disappearing Tech LBO

by Brenon Daly

With private equity (PE) firms bidding against one another (as was the case with SumTotal Systems (SUMT)) and bidding against strategic buyers (as was the case with Borland (BORL)), we might be tempted to think that the tech buyout barons are back. Umm, not really. So far this year, PE firms have accounted for just $3bn of the almost $53bn in announced M&A spending. (For more, see our second-quarter M&A report.)

To put that into perspective, consider that in 2006 there were nine individual transactions that topped the $3bn amount that we’ve tallied for the entire first half of this year. In 2007, there were another six LBOs that each eclipsed the aggregate PE spending so far in 2009.

Viewed on a relative basis, the diminished activity of financial buyers compared to strategic acquirers is even more dramatic. Not too long ago, buyout shops could outbid public companies simply because credit was cheap. That helped PE firms account for nearly one-quarter of every dollar spent on tech deals. The level now is closer to a nickel of every dollar.

LBOs as percent of overall tech M&A spending

Period Percent 2009 YTD 6% 2008 9% 2007 27% 2006 21% 2005 15%

Source: The 451 M&A KnowledgeBase

Comments

[Walter Kurtz:]

The Lyondell unsecured creditors are getting ready to sue. This case could have enormous implications. The Lyondell transaction was fairly typical of the leveraged buyout deals completed in recent years. And in most cases (of course after the company fails) one could make the argument (just like they are making in the Lyondell case) that the original shareholders who sold the company got paid hadnsomly, while the excessive leverage choked the company's operating ability. From First Data to TXU, LBO loans will face a wall of maturities. The Lyondell case may set a nasty precedent that will create a bit of a headache for the holders of hundreds of billions in senior secured LBO debt.

www.SoberLook.com

Jun 23 08:40 AM