LONDON – The recent buyout boom, most often led by private equity firms, has helped boost a broad global stock rally and made a lot of investors a lot of money. But now some market experts are seeing a leveling off in buyout activity, and some have told reporters that the biggest buyout boost is probably over.
"The issue is the extent to which [private equity deals] can drive equity values yet higher in an environment where the cost of debt has been rising,” one analyst told CNNMoney.com in an interview.
Even so, the analyst noted, private equity buyout deals will continue since buyout funds have raised huge amounts of capital that need to be put to work, he stated, and private equity firms with deep pockets are still willing to pay a high premium when they acquire companies.
Just today, Blackstone Group announced it’s paying $47.50 a share for Hilton Hotels, a 40 percent premium to where the stock closed before the news of the deal began circulating.
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The buyout is valued at $26 billion when debt is included.
But with buyouts affecting almost every stock sector and investment banks turning out a "nearly endless stream of reports trying to predict the next targets, a takeover premium has already been factored into the price of many stocks,” CNNMoney.com stated.
In addition, private equity firms which borrow heavily to finance their deals are facing tougher market conditions and tighter availability of cheap money that has fueled the buyout surge.
"There is a feeling that it is becoming more difficult to raise debt in the debt markets for more aggressive deals,” a fund manager told CNNMoney.com
Still, market analysts aren’t ready to say the merger boom is completely over even though, as one put it, "At one point, the merger boom is going to run out of steam when liquidity dries up.”
CNNMoney.com reported that market analysts said that as long as the global economy and corporate earnings remain strong, "the deals will keep humming along and keep providing at least some support for the broader market.”
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