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Private-equity firms take centre stage

Much of the action in financial markets this year will centre around private-equity fund managers. They are leading the bidding on new acquisitions, breaking records for new fund raising and seeking exits. But if it is a good time for them to sell, how can it also be a good time to buy? Delivering returns is the challenge.

PRIVATE-EQUITY FIRMS are swarming around nearly every large M&A deal at the moment – from the €4.35 billion buyout of global airline reservations company Amadeus, to Auna, Spain's second-largest telecoms company, which could go for as much as €14 billion.

Trade bidders hoping to clinch Basell, the petrochemicals business being sold by BASF and Royal Dutch/Shell, are facing a formidable alliance of private-equity firms that are amassing as much as $3 billion in debt. Wind, the telecommunications unit of Enel, Italy's biggest utility, this January decided to spurn an IPO in favour of an auction that has attracted six of the largest private-equity firms.

And while private-equity firms are breaking records in M&A – Auna could turn out to be the largest European LBO ever and Wind might be not far behind – they are also expected to take advantage of investors' eagerness to increase their exposure to the asset class by raising a record amount of cash in 2005.

Competition for cash, however, typically encourages private-equity groups to beautify their records for providing returns to investors. This means that, on top of everything else, 2005 could also turn out to be a landmark year for exits.

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