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Tito's News
LBO senior debt issuance in Europe was €19B in 2000, went up to €140B in 2007, was €18B in 2010.
When I read about 5 or 6 large buy-out funds bidding on a mature company in a mature market at 10x EBITDA valuations, I wonder where real value creation may come from.
In addition, the financial sponsor will have to add management layers that were probably unnecessary before and will have no access to synergies that an industrial player enjoys.
Truth is that the math of a traditional leveraged buy-out with no revenue growth, no EBITDA growth and no multiple expansion with a 50%/50% equity/debt capital structure is extremely hard, even with 6x EV/EBITDA valuations. Feel free to play around with my stripped down version of an LBO model spreadsheet on Google Docs.
Companies owned by private equity funds in US and Europe face over $400 billion coming to maturity over the next 5 years. Many hope to dump it on corporate bond or even public equity investors.
Corporate loans from the LBO peak of 2005-2007 coming to maturity in the hundreds of billions over the next few years. In the meantime the securitization machine, in the form of CLOs (collateralized loan obligations), has come to halt. Probably LBO sponsors will try to refinance those loans by issuing corporate bonds, albeit at a much higher cost of capital.
