The End of Easy Money
After the credit crunch, buyout activity went cold. Private equity lawyers may be down, but they say they're not out.
It had to stop sometime. As was the case with the dot-com bubble, and before that the junk bond craze, the collapse of the private equity boom made sense, was expected, and even seemed overdue-but somehow it still came as a jolt.
Easy, cheap debt had fueled the private equity engine. Its end, in mid-2007, meant a seismic shift for leveraged buyout specialists. Foremost among them is Simpson Thacher, the top-ranking firm on our private equity charts. Last year the firm advised KKR & Co. L.P. on five domestic deals valued by Thomson Financial at a total of $89 billion-buyouts of TXU Corporation, First Data Corporation, Dollar General Corporation, Laureate Education, Inc., and U.S. Foodservice, Inc.
Working on big buyouts kept Simpson Thacher lawyers busier than ever in 2007, but by the end of the year the emphasis had changed from signing up big deals to trying to save them. "It was a different atmosphere," says Gary Horowitz, part of the firm's KKR team. Announced in April but not completed until late September, the First Data buyout was especially affected by the mid-year credit crunch [see "Doctor No," page 110].
That deal was salvaged, but others didn't fare as well. An $8 billion LBO for stereo and audio equipment manufacturer Harman International Industries, Incorporated, fell through in October, and KKR's planned $1.25 billion initial public offering was postponed following tepid investor response.
The current slowdown may test private equity lawyers in ways that the boom times did not. Says Simpson partner Marni Lerner: "Whether it's keeping existing financing in place or going to other sources, like hedge funds, I think people are trying to come up with creative ways to keep deals happening." Hope springs eternal.
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