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US private equity: Selling to the club

Insider advice for sellers.

(This article appears courtesy of International Financial Law Review, sign up for a free trial on their site

With the availability of significant levels of debt and equity financing, the M&A world has seen a resurgence since its downturn in 2001. Club Deals or consortium transactions – those that involve two or more buyers joining together to acquire a target company – have played a significant role in recent M&A activity levels. These clubs or consortiums are typically composed of at least one, and often several, private equity sponsors.

The number of club deals and the values of these transactions have risen substantially over the past few years, peaking in 2006 with the now closed $33 billion leveraged buyout of hospital-operator HCA by the consortium of Bain Capital, Kohlberg Kravis Roberts (KKR) and Merrill Lynch. This record is likely to be broken soon with the recently announced $45 billion leveraged buyout of Texas power producer TXU by KKR and Texas Pacific Group.

Based upon the amount of capital that continues to flow into private equity and hedge funds, as evidenced by ever increasing fund sizes, and the availability of significant levels of cost-effective debt financing, there are few companies that cannot be considered potential buyout targets by clubs.

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