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NEW YORK, Nov 14 (Reuters) - The recent trend toward larger and larger leveraged buyouts shows no sign of slowing, JPMorgan Chase & Co.'s (JPM.N: Quote, Profile, Research, Stock Buzz) global chairman of mergers and acquisitions, Dennis Hersch, said on Tuesday.
Including $300 million in unspent cash in private equity firms' coffers and potential leverage, "you've got well over $1 trillion in buying power, and most of that is unspent," Hersch told the Reuters Investment Banking Summit.
His comments come amid a wave of announced or completed LBOs, including those involving Hertz (HTZ.N: Quote, Profile, Research, Stock Buzz), HCA HCA.N, Michael's Stores and Aramark Corp. RMK.N, as well as the rumored possibilities of Clear Channel Communications Inc. <CCU.N and even Vivendi (VIV.PA: Quote, Profile, Research, Stock Buzz).
Ever larger amounts of money are being raised by major LBO firms such as Blackstone Group, Carlyle Group, Texas Pacific Group and Apollo Management from pension funds and other institutions looking for higher returns.
Hersch, whose firm has been adviser or lender in more than half of the major LBO deals, said investor return expectations for LBOs have dropped from over 30 percent to the high teens in recent years.
But that hasn't stopped the ever-larger fund-raising -- some well over $15 billion -- since returns for traditional equity and bond portfolios are lower than what private equity can generate.
The main limitation to the size of LBO deals, said Hersch, is the capacity of the debt markets to absorb the leverage required for such deals.
So far, he said, the major recent LBO deals haven't had trouble finding investors for the high-yield debt required, which is usually 60 percent to 70 percent of the value of the deal. Continued...
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