Business Blog: Hoover’s Business Insight Zone

Current market conditions threaten any number of big buyout deals (like First Data’s) and IPOs (like KKR’s). While this puts a crimp in the plans of private equity firms and the big banks that fund their deals, it hardly puts them out of business. Witness these stories:

Goldman will “pursue smaller deals”

For the past few years, Goldman has pursued massive leveraged buyouts, such as the $27 billion deal for Alltel Wireless. But problems in the credit markets have brought those buyouts to a halt. [...]

Goldman’s new smaller deals strategy will focus on “PIPES” — private investments in public equity. With PIPES, investors take smaller stakes in target companies, and provide financing that helps smaller companies survive while they restructure.

Two items from the Wall Street Journal’s Deal Journal blog also reinforce this point:

Financial Engineering is Dead; Long Live Growth Equity!

[Growth equity] is a term that you will likely hear more in the next six months, given the increasing chorus predicting that 2008 will be well under way before the leveraged-buyout-loan mess starts to get cleaned up. The term essentially refers to private-equity investments that are less reliant on leverage and may or may not buy a controlling stake.

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Removing the ‘L’ From the LBO

Tennille Tracy reports in with some highlights from the 14th annual Private Equity Analyst Conference, sponsored by Dow Jones & Co., in Midtown Manhattan.

The first panel of the day is over, it is clear private-equity firms are adjusting to life in a tighter credit market. Some say they are even pursuing deals that won’t require as much debt financing. All say they are using this credit-market inspired timeout to refocus on running and improving the companies they already own.

My observation from this is similar to what I’ve said before about Warren Buffett: the savviest players in the business world figure out how to make money in good times and in bad times. That’s how you know they’re the savviest, and that’s how they really earn their keep. They adapt.

I estimate that what we’ll see in the next year or two is a downgrade in the reputations of some supposed financial wizards who did fine when the sailing was smooth, but who can’t handle the rough weather in the markets today. Meanwhile, the Warren Buffetts and Steve Schwarzmans and Boone Pickenses will do just fine.