Public firms taken private at fast rate 2005
Original Source Link: (May no longer be active)
Posted 11/10/2005 11:01 PM Updated 11/11/2005 10:06 AM
Buyout firms nab more public companies
By Matt Krantz, USA TODAY
As the doldrums for publicly traded stocks drag on, companies are being taken private at the fastest pace in years.
This week has been a case in point as hotel chain La Quinta (LQI), household goods retailer Linens 'n Things (LIN) and Serena Software (SRNA) became the latest to be picked off by private equity firms.
La Quinta agreed to a $2.3 billion buyout on Wednesday by Blackstone Group. Linens 'n Things accepted a $1.3 billion offer from Apollo Management on Tuesday. Serena got a $1.2 billion deal with Silver Lake Partners on Friday. Meanwhile, shares of Tommy Hilfiger have rallied 9% since Tuesday amid speculation that several private equity firms are targeting the clothing retailer. (Related: Serena Software latest target of buyout firm)
The activity reflects the surging influence of private equity firms that typically invest in private firms but increasingly are buying public companies and taking them private with the intent of running them better.
Private equity firms are enjoying boom times as low interest rates make it more affordable to borrow money needed to buy public companies, says Brad Malt, chairman of Ropes & Gray, a law firm specializing in private equity. Private equity firms also have record cash levels because the stock market's weak performance has sent large institutional investors looking for other places to put their money, he says.
Buyout firms now have a war chest of nearly $1 trillion to invest, enough to buy 7% of publicly traded U.S. stocks, says Susan Woodward, founder of Sand Hill Econometrics. That financial power is showing up in:
•Deal value. This year, $74.1 billion in deals have been done, says Thomson Financial, the most since at least 1990, higher than all of 2004 and more than 2001, 2002 and 2003 combined.
•Numbers of deals. So far this year, there have been 330 private equity deals, Thomson says. That's more than all of last year and the biggest number since the 346 deals in 2000.
Meanwhile, the cash flooding in is forcing private equity firms to hunt larger targets, says William Means of Merion Investment Partners. Few private companies are large enough to be significant investments, so giant private equity firms instead target ignored publicly traded stocks, he says. The firms think the companies can flourish when private, thanks to lower regulatory costs and freedom from short-term investors' demands.
But some think private equity's run can't last forever. Woodward says that while the main partners of private equity firms do well, the investors do no better than they would investing in an index of publicly traded stocks.
Others say cash-flush private equity firms are overpaying for deals. "They have a lot of money to invest," says Ken Heebner, portfolio manager at CGM Capital Development. "There's the risk that there's too much money."
Contributing: Roger Yu