india going global.indd - The IIPM Think Tank

MERGERS & ACQUISITIONS
ber 2006, Qantas Airways in Australia agreed to an
$8.7 billion buyout by Texas Pacific Group (TPG) and
Macquarie Bank.
Private Equity growth supports M&A market, why
Increased public profi le of private equity and continuation
of club deals
In light of the total amount of capital invested by
private equity fi rms and record-breaking LBO sizes
in 2006, the industry has fi rmly established itself as
a major player in the global M&A market and private
equity fi rms are among the most sought-after suitors for
companies seeking to engage in a business combination
transaction. According to Buyouts, 54 companies were
successfully delisted from public exchanges in 2006,
up from 38 in 2005 and 32 in 2004.
This greater public profi le has resulted in some resistance
to financial sponsor investments in certain
jurisdictions. For example, notable opposition has been
voiced by public investors, regulators and industry players
in Germany, Korea and Australia. In response to the
increasing number of private equity transactions, the
UK’s Financial Services Authority undertook a study of
the risks posed by such transactions and the potential
need for increased regulation. The study concluded that
private equity transactions posed no systemic risk and
that private equity made a significant contribution to
improving company competitiveness.
invest in even larger transactions involving household
name companies and to sustain high levels of private
equity activity.
These types of high-profi le deals, together with sustained
high levels of fi nancial sponsor activity, will
contribute to increased public awareness of financial
sponsors and the influence of private equity capital.
It remains to be seen whether LBOs will constitute a
similarly significant percentage of global M&A activity
in 2007 as in 2006. Private equity firms will need to
continue investing the large amounts of equity capital
rose over the past several years and, ultimately, will
begin to pursue various exit strategies from their portfolio
investments, including initial public offerings,
sales to strategic buyers or sales to other private equity
firms. As a result, it is anticipated that private equity
transactions will be important drivers of overall M&A
activity and continue to have a significant impact on
the global economy.
Globalization is causing many boards to consider over-
seas strategies:
China, in particular, is seen as a huge potential source
of revenue, especially for technology companies. Many
companies now feel they need an emerging markets play
and are keen to acquire the best businesses, regardless
of where they are located. Synergies continue to be a
driving force for deals.
Diverse target industries:
In the past year private equity transactions involved
target companies in a wide range of industries. Traditionally,
private equity firms have concentrated heavily
in the manufacturing, distribution and services industries,
each of which have historically generated target
companies with steady cash flows. However, fi nancial
sponsors are branching out into a variety of other industries,
as their expertise, investment scope and available
capital expand.
Abundance of equity capital and debt financing:
Private equity funds continued to set record fundraising
levels in 2006. Private equity funds raised $406 billion
last year, with 612 new funds launched, which exceeded
the previous record of $311 billion set in 2005.
Lenders have been provided more flexible debt structures
to fi nancial sponsors to fi nance LBOs. The robust
debt markets and abundance of equity capital were
significant factors in the LBO surge in 2006, and it
is likely that a continuation of favorable debt markets
this year, combined with private equity’s significant
cache of equity capital, will allow fi nancial sponsors to
Particularly in the rapidly evolving TMT sector,
where the markets for traditional providers and newer,
Web-based technologies are converging, the idea that
the best of both worlds can combine to create more
productive and efficient entities is being more readily
recognized.
Buyout Boom Not Just for Biggest Firms:
Buyout Boom Not Just for Biggest Firms:
Private equity’s ongoing zeal for the middle market
has many boards contemplating what they need to do
to spark interest in their company. To no one’s sur-
July-October - 2007 Need the Dough
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