i wasn't trading then, and wanted to hear from someone who was. i read a quote today about private equity only is this active when things are undervalued. i thought p.equity would only be this active as the prelude to things getting toppy, and that the constant merger/acquisitions were signs of topping, at least over a 1-2 yr period. i could be wrong. can someone who was around in that time tell me? thanks.
There are a lot of variables you have to consider. These deals are really only possible due to cheap debt. If you took out cheap debt, 50% premium buyouts wouldn't work quite so well since 3/4 of them are financed by debt. I'm sure there are synergistic reasons for many of these buyouts, but some of them are ridiculous. I think a lot of the private equity stuff is going to blow up in the face of the debt-holders...there was a Bloomberg article the other day about how bond-holders are having clause written into their agreements saying they will be able to sell their bonds back if the company they're investing in decides to be bought out. Investors in Sally Mae for instance appear to have been screwed because the buyout would cause the company to have a lower debt rating and the bond-holders would feel that crush. It'll be interesting to see how all of these LBOs play out.
Instead of focusing on the financial aspects, it might be better to focus on the confidence needed to do the deals. Smaller deals get the ball rolling. This emboldens larger and progressively larger companies to do deals. The largest companies within an industry sector see these deals happening around them. The largest companies within the industry finally muster the confidence and financing to do a blockbuster-size deal. That transaction should mark the end of the merger frenzy for that industry because everyone else is loaded up on debt and there aren't any other unacquired companies left to merge with. It doesn't necessarily mean that there's a stock market meltdown waiting around the corner but the sector should be avoided.
undervalued?? looking at it now, companies were cheaper just 3 years ago then they are today. Private equity buyouts can only go for so long before liquidity starts to dry up, once that takes place this bull market will end.
Has anyone read any of the books on the junk bond sellers in the 80's, like Predator's Ball, Den of Theives, and others, anyone recommend any of them?