Study: Buyout volume shrinks 74% in 2008

Private equity-backed M&A has steeply declined both in terms of total volume and as a percentage of M&A worldwide.

Private equity-backed buyouts totaled $179.8 billion (€126 billion) in the first three quarters of 2008. The volume has not been that low since 2004 when buyouts at the end of the third quarter totaled $167.2 billion, according to data from Thomson Reuters.

Current volume is substantially lower than the last two years. At the same time in 2007, $683.5 billion of private equity-backed buyouts had taken place and $448.5 billion had taken place at the end of the third quarter in 2006.

Private equity-backed buyouts have shrunk to the smallest percentage of global M&A volume since 2001 as the credit markets continue to deteriorate and banks become less willing to provide leverage.

Private equity buyouts have accounted for only 8.1 percent of M&A volume so far in 2008, compared to 18.5 percent in 2007 and 20.9 percent in 2006. The last time the figure was lower was in 2001 when private equity-backed acquisitions made up only 4.5 percent of global M&A.

The findings echo mid-year data from M&A intelligence service mergermarket showing that strategic buyers have stepped into the void left by the “severe decline in the buyout market”, dominating sales that one year ago would have been led by private equity firms.

Only one of the five largest M&A deals in 2008 involved private equity firms, and it was an exit. The transaction, the fourth largest this year, involved the sale of TPG and Goldman Sachs-backed wireless company Alltel to Verizon Wireless for $28.1 billion.