Big buyouts go global

NEW YORK (CNNMoney.com) -- Private equity firms are making a bigger push to go global, underscoring just how crowded the market has gotten for buyout deals in the United States.

The last time the buyout business was booming in the late 1980s, there were a just a few funds competing for a relative handful of deals, mostly in the United States and Britain.

"But these days buyout firms are on virtually every continent," said Clint Harris, founder and managing director of Grove Street Advisors, a private equity investment advisory firm.

The big push in buyouts overseas has been fed by many of the same factors feeding the domestic buyout boom: massive amounts of cheap capital, and a hunger for bigger returns on the part of investors.

Buyout funds raised $204 billion worldwide last year, up 40 percent from $146 billion in 2005, according to Private Equity Intelligence, a London-based research firm.

Private equity firms have been on the hunt for less crowded shores since the height of the last leveraged buyout boom, when Kohlberg Kravis Roberts bought RJR Nabisco for $25 billion in 1989 - at the time the biggest LBO in history. They first set their sights across the Atlantic in the 1990s and have made a much deeper push into Asia in recent years.

Last month, Providence Equity Partners and Carlyle Group were among the buyers in the $3 billion buyout of Australian and New Zealand media firm APN. Blackstone opened its first office in Asia in Mumbai in 2005, and early this year expanded its Hong Kong office to further boost its investments in the region.

Dealmaking around the world has accelerated, so much so that industry watchers say private equity has become more global today than it has ever been before. In fact, buyout deals accounted for 61 percent of the deals outside the United States last year, up from 56 percent in 2004, according to deal tracker Dealogic.

That's partly because the market in the U.S. has grown more competitive, leaving many private equity firms looking elsewhere for opportunity.

"The companies outside the U.S. are going through a growth phase - the average rate of growth outside the U.S. is higher [than in the U.S.]," said Vinay Nair, assistant professor of finance at the University of Pennsylvania's Wharton School.

And faster-growing companies can be more attractive since the returns can be bigger for investors.

Buyout shops specialize in buying companies with mostly borrowed funds. Their aim is to buy firms, fix them or grow them and then sell them for a profit.

Furthermore, many of these growing companies have the ambition of being global players - making private equity a good match for them.

The momentum abroad shows few signs of slowing. Activity is picking up in Britain, the center for private equity in Europe. Last month a group of some of the biggest names in private equity, including Blackstone, CVC Capital, KKR and Texas Pacific, said it was mulling an offer for J. Sainsbury, Britain's No. 3 supermarket chain.

Deals are also picking up in places like Germany, Italy and Spain, where buyouts traditionally have not been looked upon favorably, according to Mario Levis, professor of finance at Cass Business School in London.

Earlier this month KKR and London-based private equity firm Permira completed a $4.1 billion deal to acquire a stake in German TV broadcaster ProSiebenSat.1.

"Even those who are not favorable to private equity have to accept the fact that it seems to generate real value in terms of jobs and investment, and therefore investors seems to be accepting that and putting more money in that," Levis said.

Private equity funds raise money from wealthy investors and institutions such as pension funds and endowments. No longer considered exotic, the funds have become attractive to investors seeking higher returns.

But the international market is getting more crowded - even in once emerging regions like Asia. That's forcing buyout firms to seek opportunities in rapidly growing economies like Brazil and Eastern Europe, where prices haven't been bid up yet, Nair said.

Deal activity may be accelerating overseas, but that doesn't mean private equity players are fleeing their own backyard. The market in the U.S. has matured, but there's still plenty of action in the market for multi-billion dollar deals, where only the largest players can compete.

A group of investors led by KKR and Texas Pacific Group said late last month that Texas utility TXU (Charts) had agreed to be taken over for $32 billion, making it the biggest buyout on record. The deal is valued at nearly $45 billion when assumed debt is included.

"The problem for private equity groups today is they have too much money to spend," Levis said.

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