Leveraged Buyouts Go Small
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This summer’s credit crunch may have put a squeeze on the leveraged buyout industry, but there are plenty of deals getting done — on a smaller scale.
There were 71 buyout deals in October, compared with 79 deals in October 2006. The deals added up to just $8.5 billion this year, while last year’s total was $42.2 billion, according to research firm Dealogic.
“It’s business as usual for us,” a managing director with Delta-Point Capital Management, David Waterman, said. His said his firm sold one company last month, refinanced another in September, and has six buyout deals in the works. Among the reasons why the market for small deals is robust even while large buyouts falter, industry watchers say, is that the financing for smaller deals hasn’t typically come from the major Wall Street banks. Instead, boutique lenders raise funds to finance small and mid-size buyout deals, or those worth $50 million to $500 million.
Lenders such as American Capital Strategies Ltd. and Golub Capital are open for business as the big Wall Street firms struggle to syndicate a huge backlog in leveraged loans. The boutiques don’t have that problem, as they tend to hold onto their debt rather than sell it. Smaller deals also require less debt than larger transactions, making them easier to finance, according to the chief executive of Hammond Kennedy Whitney & Co., Glenn Scolnik. His firm has sold two companies this month, and it bought another company in August.
There has also been a flood of small companies hitting the market lately, as their owners look to make a return ahead of a change in the capital gains tax or a downturn in the economy. Hammond Kennedy, for instance, is exploring options for three portfolio companies.
A senior banker with Greene Holcomb & Fisher, Joseph Lavely, has also been seeing more companies hitting the auction block. His bank advised 20 deals this year and has another 19 in the pipeline, which is an unusually high number for this time of year, he said.
Mr. Wilson created Integer Capital this spring after leaving Fidelity Capital Investors. Other recent entrants include Riverside Co., Mangrove Equity Partners, and Westshore Capital Partners, among others.
“Things continue to be very, very strong,” Mr. Lavely said. “There is just a lot of equity out there.”
