Why is private equity behind recent company takeovers?

The increasing size and number of private equity deals as 2006 closed has focussed attention on whether private equity investors can achieve better results in companies than existing boards and management can for their shareholders using traditional bank financing and conservative debt levels.

In this HWB podcast Professor Josh Lerner discusses historical trends and current deals to put it all in perspective.

He argues that:

• An influx of money on the equity side from pension funds and overseas investors is helping create an explosion of leveraged buy-outs.
• Hedge funds have joined banks as major providers of debt, creating a market with more favorable terms for investors.
• Although there have been deals that have gone sour, the private equity boom can be seen as mostly beneficial for both investors and the companies involved.

Alan Kohler argues that the private equity boom is actually being fuelled by investment bankers becoming more aggressive in their search for transaction fees and management fees and that the current round of activity will end badly.

According to the Sydney Morning Herald,  in Australia, private equity deals on the table tally at least $22 billion - close to $40 billion if the rejected offer for Coles is included. They are a combination of leveraged buy-outs and restructuring deals. And there is nothing apparent to slow them down.