Although the latter half of 2011 saw a notable constriction in credit markets as a result of global financial uncertainty, figures for the whole of 2011 show that there were still plenty of banks that were willing to finance private equity-backed buyout deals.
In the year as a whole, Bank of America Merrill Lynch was the most active provider of credit to fund managers looking to leverage their investments, having participated in the debt financing of 23 buyouts with an aggregate deal value of $37.6bn. The bank was part of the financing consortiums for the acquisitions of Samson Investment Company, Kinetic Concepts, Frac Tech Holdings, Securitas Direct and Emergency Medical Services, which had an aggregate deal value of around $23.5bn. Interestingly, despite the $6.3bn acquisition of Kinetic Concepts and the $7.2bn acquisition of Samson Investment Company being announced in the third and fourth quarters of 2011, respectively, amid volatile market conditions and a downturn in PE-backed buyout activity, each was financed with a significant debt component.
While Bank of America Merrill Lynch had also topped the list of debt financing providers in 2010, the second most active debt provider in 2011, Royal Bank of Canada, did not feature in the top 10 in the previous year. The bank committed financing to 20 buyouts in 2011, with an aggregate deal value of $31.8bn. The remainder of the top 10 is comprised of more established debt providers, with all eight banks having featured in the previous year’s list, albeit in a slightly different order. Third placed Citigroup provided debt financing for 13 deals in 2011, fewer than Barclays, Credit Suisse and Deutsche Bank. Despite this, these deals had an aggregate value of $25.9bn - higher than the aggregate deal values for the three aforementioned banks, which came fourth, fifth and sixth, respectively. The top 10 was rounded out by global banking institutions Morgan Stanley, Goldman Sachs, JPMorgan Chase and UBS.
In summary, although credit markets tightened in the second half of last year and private equity-backed buyout and exit activity fell as a result, there are examples of fund managers being able to obtain adequate financing for mega-value deals. However, these deals may require a greater equity investment than was needed in the buyout boom-era, as well as backing from a larger syndicate of debt financing providers.