Buyouts fall worldwide by 64%(2)

Financial sponsors’ dealmaking fell dramatically last month as the problems in the debt markets dramatically curtailed the buyout boom. Buyout firms represented only 7 percent of overall mergers and acquisitions volume in August.

Dealflow in August was the lowest in two and half years as problems in the leveraged loan market left buyouts on hold, according to Thomson Financial.

A recovery is unlikely to come soon. There is a backlog of nearly $500 billion outstanding financial deals, according to data provider Dealogic. Financial sponsor related debt took up $273 billion of the pipeline while overall outstanding leveraged loan debt was $385.5 billion

The US leveraged loan pipeline was $227 billion, financial sponsors accounting for $189 billion of the loans awaiting syndication.  

Given the need to syndicate the existing pipeline and the lack of liquidity in the debt markets, leveraged buyout activity last month fell dramatically. The global volume of financial sponsor-led buyouts has fallen 64 per cent on last month year to date with only $16.6 billion worth of buyouts last month, according to data published by Thomson Financial.

There were only $4.2 billion worth of deals in the US in August, down 68 percent on last year. This is the lowest volume since January 2004 and corresponds to only 7 percent of overall M&A volume. In May buyout firms accounted for 47 percent of dealflow.

Global M&A activity was also the lowest since July 2005 with $178.6 billion of deals, 32 percent below last year.

The debt markets are braced for further bad news about debt syndication. The underwriting banks on the First Data deal are reportedly considering holding 30 percent of the $14 billion of bank generated loans on their books, according to UK newspaper Financial Times.

The banks are undecided about the remaining $8 billion of high yield loans on their books and it is believed it will be difficult to find buyers for this tranche, the FT said.