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.