AVCAL: Global decline of the mega deals
The first half of 2007 saw private equity take off, as massive deals became common. In July alone, private equity deals in the United States exceeded US$64 billion. For the remaining months of 2007 deals, dropped to a monthly total below $US8 billion. The "mega deals" virtually disappeared from the market; no deals above US$10 billion were announced after July. For the first half of 2007, the average deal size for transactions over US$1 billion was US$4.2 billion. After July this was halved to US$2.1 billion. Through this time middle market transactions have survived. With the large end of the private equity spectrum getting hit by the "credit crisis", characteristics of the middle market have allowed it to survive.
Middle market deals tend to have a smaller percentage of debt financing around six times EBITDA as opposed to eight times EBITDA for larger deals. The trends within the market are for firms to use new tactics, more syndicated deals, use of mezzanine debt and putting extra levels of equity into deals.
It has been stated that the US buyout market is exhausted and the big cashed up private equity firms will look to move into new places such as China, India, Brazil, the Middle East and South Africa. Already, deals and funds are forming in less 'traditional' areas. In Turkey, KKR spent US$1.3 billion on a shipping group, while Actera Group set up the largest buyout fund through raising US$475 million. UK based Aureos, is currently raising Central Asia's first buyout fund, looking to invest in countries such as Kazakhstan. The biannual barometer of LP investment, by Coller Capital stated that the proportion of LPs with exposure to emerging market private equity has grown from 24 to 40 percent within two years.
A major difference within emerging market corporations is that owners of the companies dealing with private equity are commonly not short of capital or looking to cash out. Their objective of attracting 'western' investors is to gain their expertise and assist with the expansion of the company. Therefore these deals tend to take have a more venture capital structure, with minority investment leveraged with little or no debt.