Private Equity Briefcase

November 12, 2007

Hope on the Horizon for LBO Dealmakers?

Private equity buyers are dealing with a lot right now: a tough leveraged loan market, the possibility of a large tax increase on carried interest, a possible recession and a labor-sponsored public relations challenge from the Service Employees International Union.

Cancelled buyouts or retooled deals, meanwhile, have almost become the norm rather than the exception in 2007.

But, one of the biggest challenges buyout executives face at the moment is arriving at an acceptable price for a target company's assets.

There's little disagreement among M&A dealmakers that there's been of a mismatch over the last several months when it comes to expectations between buyers and sellers on the subject of valuations. If the comments, however, made by Blackstone Group chief executive Steve Schwartzman on Nov. 12 offer any indication, valuation expectations, it would appear, could be starting to line up like the stars in a constellation.

"This environment provides us with both challenges and opportunities. While it will be difficult to structure very large leveraged transactions in corporate private equity and real estate until the credit markets improve, pricing of assets is more favorable," said Schwartzman.

The comment doesn't exactly come at a bad time for the deal industry, especially considering the Blackstone chieftain's remark was included in the same news release that notified the world of the New York private equity firm's $113.2 million third-quarter loss, which stemmed from its initial public offering earlier this year.

If valuation expectations are indeed beginning to come closer, leveraged buyout dealmakers might have one more reason to toast this coming Thanksgiving.