Private Equity & Venture Capital

• Mid-Range Deals Take Private Equity's Center Stage

• Banks Use Venture Capital To Cross-Sell For Future Business

Mergers & Acquisitions

• Strengthening Protection For Shareholders Raises Merger Premiums

Global Markets

• Tips On Mining Cross-Border M&A Opportunities

• Sovereign Wealth Funds Raise Concern Among Regulators

Securities Offerings

• Avoiding Pitfalls When Drafting Registration Rights Agreements

Bankruptcy & Insolvency

• Cheap Assets, But Few Buyers

• Surviving Corporate Restructuring, Before And After Chapter 11

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Deal size is shrinking. In the current tight credit market, companies can no longer rely on cheap money to fund ever bigger deals. Debt is hard to place and expensive, and fully leveraged deals have evaporated. However, mid-range deals—under $1 billion—continue to get done, Danielle Fugazy reports. Private equity firms have begun setting up funds targeted for $250 million to $1 billion deals. Advent International raised $10 billion for its mid-market fund, NEP attracted $800 million, and TPG and Silver Lake each collected over $1 billion. The Carlyle Group and other firms have funded mid-market deals by partnering with mid-market specialists and tapping existing investment funds not specifically targeted to deal size.

Big players move down market, quality moves up. Becalmed in the mega-deal category, the larger private equity houses are focusing their attention on the mid-market to maintain volume. This trend could squeeze those already active in the mid-range, predicts the author, toward even smaller deals. If private equity firms are forced to court companies and deals that would normally be beneath their interest level, what will happen when credit loosens up and bigger deals again become possible? Will the smaller-than-usual clients become neglected orphans in the firm’s portfolio of investments? Certainly private equity has gotten much pickier about the deals to pursue. In the cheap credit days, private equity dealmakers would consider a prospect growing at 5%, but with more of their own capital required these days, they want to see projections of 20% annual growth. The consequence is that the quality of deals seems to be rising.

More cash, more creative financing. Debt is not the only way to get the deal done, the author reminds. The bigger private equity houses can simply write out a check for mid-range deals. Selecting the most promising target and then paying cash avoids the increasingly high costs and burdensome covenants associated with debt. While debt plays a part in many deals, it is far more restricted than in the recent past. Even when debt is the medium, companies are finding it in less traditional places. For example, Hellman & Friedman bundled financing from two hedge funds with loans from a few banks to take Getty Images private. Meanwhile, strapped lenders are trying to unload the debt that financed the recent boom in megadeals. Hard-pressed for cash amid heavy losses, lenders have written down debt and are selling it at heavily discounted rates. Private equity thus finds itself helping out lenders to free up capital by buying back debt (albeit at bargain prices).

Abstracted from Dealmaker, published by Doubledown Media, 240 West 35th Street, 11th Floor, New York NY 10001. To subscribe, call (847) 763-9510; or visit www.dealmakerdaily.com (or www.dealmakerdaily.co.uk).