Blackstone forecasts return of $10 billion LBO

NEW YORK Thu Sep 23, 2010 5:02pm EDT

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NEW YORK (Reuters) - Private equity firm Blackstone Group (BX.N) said on Thursday that the debt markets have recovered to such an extent that it should be possible for a $10 billion leveraged buyout deal to happen soon.

Private equity deal flow contracted after the credit crisis limited access to financing, but has been increasing this year. Many funds are sitting on large amounts of money to invest.

The debt markets have rebounded and it would be possible now to do a deal with $5 billion of debt, said Blackstone's senior managing director Garrett Moran at the company's investor day.

"(That means) there could be a $10 billion buyout, in the not too distant future, somewhere, somehow," Moran said. "That's in the realms of today's market. Opportunities to buy things are pretty good."

A number of large buyouts mulled this year have not happened. A Blackstone-led group considered buying Fidelity National Information Services Inc (FIS.N) in May for about $15 billion, but pulled out because of disagreement over price.

"We've had a recovery in the credit markets which has frankly been a bit surprising," Vikrant Sawhney, senior managing director, told investors at the same event.

Blackstone has about $15 billion to invest in its private equity business. It recently raised a sixth buyout fund of about $13.5 billion, and expects that it will finish investing its $21 billion fifth buyout fund in the coming months.

The firm also has a number of portfolio companies it is selling or taking public.

While Blackstone isn't "sitting on a lot of pregnant exits" there are probably six to eight companies in various stages of exit, said Blackstone Chief Operating Officer Tony James.

The firm is raising a $500 million fund to invest in clean technology which it expects to close in the first quarter of 2011 and a yuan-denominated China fund of about $740 million.

Blackstone has returned an average of 2.4 times capital invested in its private equity and real estate funds, it said in a presentation.

The firm also continues to see opportunities to invest in commercial real estate, said Blackstone's co-head of real estate Jonathan Gray.

SHARE BUYBACK UNLIKELY

The company said it has no immediate plans to buy back shares, although could do that later.

"I don't like the idea of repurchasing shares because we could have repurchased the whole company at $5," said Blackstone's CEO Stephen Schwarzman, referring to Blackstone's shares, which sank after the credit crisis.

Blackstone went public in the summer of 2007 at $31 a share. Shares closed down on Thursday 3.6 percent at $10.77.

"Our dreams haven't changed," said James. "Buying in the stock or even going private would cause us to have a different view of the future. We could conceivably get there, but it is not where we are today."

Schwarzman said he was not eager to issue common stock in Blackstone at this price.

"I don't wake up in the morning and say 'how much can I issue at $11'," he said.

Blackstone recently raised $400 million via a bond sale, but said it is not anticipating using that on large deals made off its own balance sheet.

"You're not going to see us announce that we've blown that... on a big acquisition," said James.

"I don't think you'll see a lot of significant acquisitions from us, but tuck-in acquisitions," he said.

(Reporting by Megan Davies. Editing by Robert MacMillan)

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