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[Pata-Hari]

Private equity investors waking up to discover that deals may have been a bit over leveraged


The LBO bacchanalia is over, and investors are waking up with a bad hangover and the realization that girl they wound up in bed with doesn't look nearly as good in the light of day.....

Soon, investors in private-equity funds, and the employees who work in their portfolio companies, will be making some very fundamental queries. How much did private-equity firms, aided by the Wall Street debt machine, overpay for the deals done in 2006 and 2007? What would the likes of a Univision, Freescale Semiconductor or Canadian phone company BCE fetch if they were auctioned today as opposed to the debt-debauched days of yore?

They would be "hard-pressed to achieve those valuations again," says Jake Newman, a media analyst at research firm CreditSights Ltd. Or, as one banker succinctly put it yesterday: "No way."

That matters immensely if a recession is around the corner, because companies may not be able to meet their basic financial requirements, such as servicing debt or funding new investment. And in deals that depend on rolling asset sales to reduce leverage -- such as Univision's struggling auction of its music group -- declining valuations make life all the more difficult.....

Consider how pricing has changed over the past few years. During the first half of 2007, leveraged buyout targets went, on average, for a price 9.8 times their cash flows, according to a J.P. Morgan analysis. In 2006, the figure was 8.6 times, and only 7.7 times in 1999. Fueling this surge, of course, was Wall Street, which in the form of guaranteed financing was essentially subsidizing ever-higher prices.

Fonte:http://wallstfolly.typepad.com/wallstfolly/2007/12/private-equity.html#more