Buyout bosses convene under gathering clouds

By Megan Davies and Eleanor Wason

NEW YORK/LONDON, Feb 24 (Reuters) - Private equity chiefs will convene for a major conference in Munich, Germany, this week in an industry atmosphere that is markedly changed from last year.

Rewind to February 2006, when chat at the "Super Return" conference was about the multibillion-dollar deals they were considering and which buyout firms might themselves go public.

Coming on the heels of deals such as the $31.8 billion buyout of energy company TXU Corp. and the $22.9 billion buyout of office landlord Equity Office Properties Trust, private equity seemed invincible.

Blackstone Group's co-founder Steve Schwarzman told reporters at the conference, held last year in Frankfurt, that he had sized up massive buyout targets: "We've looked at things in the $50 billion range," he said. "We looked at one deal of that size in Germany, but the stock went up too much, so we couldn't do the deal."

David Rubenstein, co-founder of buyout firm Carlyle Group, was quoted in the Independent newspaper at the time as predicting that a $50 billion deal would be pulled off by the end of the year, while a $100 billion deal was possible within two.

A discussion about the pros and cons of private equity firms going public took place, months before Blackstone launched its initial public offering.

A month earlier, in an interview with the Wall Street Journal in January 2007, private equity icon Henry Kravis of Kohlberg Kravis Roberts & Co said: "I have never seen a time like this when money is so available and so global."

TIMES CHANGED

Fast forward a year, and times have changed dramatically.

Markets seized up in the summer after the subprime turmoil, bringing to an abrupt halt a buyout boom which broke records for the largest deals ever struck. Financing large leveraged buyouts was off the table, while deals already struck were put on shaky ground.

The situation for banks was grim as the credit crunch left them holding billions of dollars of loans and bonds they had committed for leveraged-buyout financings.

A number of deals struck by buyout firms were either pulled or renegotiated, with some ending in costly litigation battles which dented private equity's image.

Meanwhile, volatile equity markets took down the shares of Blackstone Group (BX.N), which went public in June at $31 a share, but closed Friday at $15.72, in all probability dissuading others from launching initial public offerings of their own.

Against that backdrop, top of the agenda for delegates, will likely come forecasts for when the financing markets will rebound enough for leveraged buyout deals to be struck again.

"The obvious hot topic is going to be how the debt markets are going to affect our ability to do deals and to refinance companies already in our portfolio," said a mid-market buyout firm director, who declined to be named.

Blackstone's chief operating officer Hamilton James, a scheduled speaker on Tuesday, predicted in January that the debt backlog could take through the end of 2008 to clear.

The market will look for forecasts from the bosses of other big private firms who are set to speak on Tuesday and Wednesday -- when Munich's own gloomy weather forecast is for rain.

The emphasis is likely to be on how they'll guide the companies acquired during the boom through an economic downturn.

While the credit crunch will be uppermost on private equity bosses' minds, a wealth of other issues are likely topics of discussion in Munich -- from the impact of cash-rich sovereign wealth funds looking for places to invest, to the impact of an administration change in the U.S. government.

Image also remains an issue as private equity, which employs some of the world's richest people, has bumped up against opposition from unions accusing buyout bosses of earning too much money while stripping and flipping the companies they acquire.

While much of the focus of public attention has shifted to concern about the secrecy and growing power of sovereign wealth funds, private equity still has to work on its image after coming under fire from unions, politicians and the media during the industry's buyout spree last year.

In an indication of how sensitive some parts of the industry have become to public criticism, several of the conference's sessions on Wednesday focus on image and communications. (Reporting by Megan Davies in New York and Eleanor Wason in London. editing by Gunna Dickson)