PE Deals Tank in 08

The credit market retraction and economic downturn sliced the number of leveraged buyout deals arranged last year.

Private equity firms executed a record $21.2 billion of growth capital investments last year, or 252 transactions involving public and privately held businesses, according to research from data provider PitchBook Data.

The credit market retraction and economic downturn sliced the number of leveraged buyout deals arranged last year to 1,241, marking a 40% decline from the 2,097 LBO deals generated in 2007. In addition, the amount of equity and debt invested via leveraged buyouts declined to $116.5 billion in 2008, compared with $489.5 billion for the prior year.

Not surprisingly, the number of large private deals, or those valued at more than $2.5 billion, declined 75% to $86.5 billion. In 2007, mega transactions commanded $347.6 billion of capital; even so, large transactions made up close to 50% of the equity invested in deals last year.

Despite the decline in large private equity transactions, the $186.6 billion invested in 2008 represented the third-highest amount of capital ever put to work, according to Seattle-based PitchBook.

The fourth quarter of 2008 illustrates the toll that the volatile financial markets have had on private equity. For example, capital invested in the fourth quarter fell more than 85% to $24.6 billion, or 251 deals, as compared with the $184.7 billion deployed the fourth quarter of 2007.

John Gabbert, chief executive of PitchBook, said that until the credit markets are revived, financial sponsors "will have to increase the amount of equity used in leveraged transactions or continue making more minority investments."

Leonard Green & Partners is one buyout firm that made a large minority stake deal in 2008. Last year, the Los Angeles private equity firm invested $425 million in Austin, Texas-based natural foods grocer Whole Foods Market.

Energy and financial services, meanwhile, accounted for the most private equity transactions with 60% of deals executed last year. Energy companies drew $7.6 billion of transactions, while financial service businesses represented $37.8 billion of deal volume.

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