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Big buyout activity collapses

Investment banking revenues from buyout firms have plummeted and deal volume was down by 65 percent in a malignant quarter for mega-buyout firms.

The amount of fees generated by buyout firms was down 77 percent to $1.16 billion (€742 million) in the first quarter of 2008 compared with the same period last year, according to data provider Dealogic. This was less than the total generated by the two highest spenders in the full year 2007.

The lack of fees generated by buyout firms coincided with a 65 percent slump in the volume of deals, down from $179.8 billion last year to $63.1 billion in the first quarter of 2007. This is the lowest first quarter deal volume since 2004.

Loan volume was also down to $55 billion, only around 15 percent of the total borrowed in the same period the previous year.

Reflecting the lack of available debt financing the only outstanding offer above $4 billion in the quarter was financial services buyout firm JC Flowers’ £3.5 billion hostile bid for UK insurer Friends Provident.

Last year’s big spenders The Blackstone Group and Goldman Sachs Capital Partners only paid under $5 million in advisory and financing fees this year. By contrast, Blackstone and Goldman’s buyout arm paid $646 million and $617 million in the full year 2007. 

US buyout firm Kohlberg Kravis Roberts has also slid down the fee ranking in the first quarter of 2008, falling to 16th position, with only $16 million of fees paid. This is in contrast to its fourth position in the full year ranking for 2007 after paying $527 million in fees.    

But activity during the first quarter has not stymied some buyout firms from stepping up the pace.

Specialist energy firm First Reserve provided the greatest net revenue for banks from advice and financing. The energy buyout firm’s $75 million activity in the first quarter of 2008 was more than three times higher than the $24 million it paid in the same period last year.

First Reserve also signed the largest agreed deal of the first quarter, with its C$3.7 billion ($3.6 billion, €2.5 billion) take-private of offshore oil industry transport company CHC Helicopter, and it invested $4.8 billion across four deals in the first half taking it to second in the data provider’s global rankings, behind Flowers, which came top of the rankings counting its hostile Friends Provident public to private.

2007's most active firms;
a new orthodoxy? 

Larger mid-market buyout firms Montagu Private Equity and 3i were ranked third and fourth in the deal rankings, from $3.9 billion and $3.7 billion of transactions across three and 14 deals respectively. BC Partners’ $3.2 billion take-private of supermarket Migros, the largest ever deal in Turkey, secured it fifth place.

All ten of the firms which generated most deal volume in 2007, were absent from the list of the equivalent firms in the first quarter.