Industry enjoys record year as default fears grow

Private equity deal-making smashed all previous records in 2006, although fears are growing that choppier waters may lie ahead for the industry in 2007.

Global deal volume reached a new high of $737.4 billion (€567.5 billion) in 2006, more than double the previous high of $352.3 billion in 2005, according to figures from data provider Dealogic. In total, private equity deals accounted for 18% of all global M&A volume, up from 12% in 2005.

However, although default rates are currently at historic lows, rating agency Standard & Poor’s expects this to change in 2007 as a number of private equity-backed companies start to struggle under the burden of debt.

Polestar, a magazine printer bought by Investcorp in 1998, agreed a debt restructuring last month to avoid bankruptcy. Focus, a UK DIY chain owned by buyout firms Apax Partners and Duke Street Capital, is also expected to complete a restructuring within the next month.

Sponsor fee ranking

The 2006 total included the biggest buyout to date, The Blackstone Group’s $36.0 billion deal for US property firm Equity Office. The US-based buyout firm paid out $622 million in banking fees in 2006, more than any other firm, with other big deals including the $12 billion acquisition of Danish market research firm VNU, and the $6 billion purchase of US crafts retailer Michaels Stores. Kohlberg Kravis Roberts was the second biggest fee-payer, spending $555 million, and Apax Partners was third, paying out $500 million in fees.

Globally, real estate investment soared from $71.4 billion from $13.8 billion, making it the third biggest sector for private equity deals. As in 2005, telecoms was the biggest sector, at $79.9 billion.

JP Morgan made the most money from advising private equity clients in

Bank ranking – sponsor fees

2006, according to the Dealogic figures, amassing $1.25 billion in fees. Goldman Sachs was in second place, making $1.14 billion in fees, while Credit Suisse was third with $1.02 billion.

Average deal size topped $500 million for the first time in 2006, reaching $513 million, an 81% increase from the 2005 figure of $283 million.