TORONTO, ONTARIO: FEBRUARY 09, 2012 - Bay Street in Toronto, Ontario is seen here Thursday Feb. 9, 2012. (Tim Fraser for The Globe and Mail) (For ROB story by n/a)Tim Fraser/The Globe and Mail
Bay Street may lament the lack of merger activity, but a few signs point to busier days ahead in the global deals market.
Private equity funds have been raising money briskly: globally, they raised $67.2-billion (U.S.) in the first quarter, according to Prequin. Five of the 10 largest funds to close were buyout funds – and there's more to come, says Bruce Myers, managing director of Cambridge Associates, a Boston-based investment advisory firm.
"The mega buyout market is coming back," Mr. Myers told an audience of bankers, private-equity investors and venture capitalists at the CVCA's annual conference in Banff, Alta. (CVCA is the acronym for Canada's Venture Capital and Private Equity Association.)
The biggest acquisitions have been in the U.S., led by the purchase of H.J. Heinz Co. (by a group that includes Warren Buffett's Berkshire Hathaway) and the battle to take Dell Inc. private. But beyond those headline-grabbing deals, Mr. Myers points to a number of smaller transactions as a leading indicator.
Some of those deals have gone unnoticed because they involve one buyout shop flipping assets to another – the same kind of activity we saw during the pre-crisis years. That suggests private equity funds are getting eager to deploy their billions. Add in cheap credit and "all the signs we saw in 2006-07 are there," says Mr. Myers.
Well, except robust economic growth.
Some big players are hungry for private deals. CPP Investment Board head Mark Wiseman, who on Wednesday launched a campaign to persuade institutional investors and corporate directors to take a longer-term view when making decisions, continued on that theme in Banff, arguing that private companies are superior. Their directors work harder, he said, and they stay focused on increasing the company's value.
"The private company is investing for growth. The public company is managing quarterly earnings," he told the CVCA crowd, adding: "The private-equity industry is a natural champion of long-term thinking."
Just playing to the audience? Not so, said Mr. Wiseman. CPPIB has $70-billion invested in private assets; about $33-billion is in private equity, with the rest in a mix of real estate, infrastructure and private debt.
He would like to take that number higher. Mr. Wiseman, who led CPPIB's losing effort to take BCE Inc. private in 2007 for nearly $40-billion, does not think deals of that size are likely to return soon. But "deal sizes in the $10-billion-plus range are entirely doable in this market," he said. "The equity capital is available. The debt capital is available." The only question is valuation, and whether public companies can be bought cheap enough after the market's bull run.
Derek DeCloet is the Editor of Report on Business.
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Derek DeCloet