BEVERLY HILLS, Calif. Most big deal-makers sounded subdued at this years Milken Institute Global Conference, although some voiced optimism that nimble investment managers might find deals even before the credit freeze thaws.
There are deals to be done in distressed (debt) bailing out banks, Leon Black, founding partner of Apollo Advisors LP, New York, said during a panel called The Year after the Year of Private Equity: What Now? He compared todays environment to earlier periods like 1990-1992, when Apollo bought good distressed companies with bad balance sheets.
Its not good for conventional leveraged buyouts, Mr. Black added. It wont be good for leveraged buyouts for another 12 to 18 months.
Banks have been working their way through the overhang of debt on their balance sheets before starting to lend again and the $23 billion Mars Inc.-Wm. Wrigley Jr. Co. deal announced in late April boosted buyout sentiment but the credit markets are still broken, Mr. Black said.
Thomas Lee, president and chief executive officer of Thomas H. Lee Capital LLC, the New York-based private equity firm, said smaller deals, less than $1 billion, can get some financing, but debt to finance such deals is more expensive and more equity is required.
It will be a harder job to buy, build and invest in companies in the U.S., he said, pointing out that the credit situation is worse in the United States than in the rest of the world.
Not only do the credit markets have to return to normal, but prices have to come down, Mr. Black said. Until prices come down, buyout firms will not be able to get the amount of debt they had been getting, thus stalling buyout activity, he said.
In a world without cheap and easy debt, Apollo is looking for opportunities buying bank debt and hung bridge loans that are clogging up banks balance sheets, Mr. Black explained during another panel called Financial Convergence: The Changing Investment World. Apollo executives are also searching for distressed opportunities, buying good companies with bad balance sheets and non-control investments in which Apollo will not end up owning the company, he said.