Buyout bubble: Getting there, but not yet

Posted May 23rd 2007 10:53AM by Eric Buscemi
Filed under: Deals, Private Equity, Alcoa Inc (AA), Morgan Stanley (MS), Dow Jones and Co (DJ)

Defining periods of irrational exuberance can be difficult. However, one method to do so might simply be to look at the headlines. Here are this morning's:

Crescent Real Estate Equities to be purchased by Morgan Stanley (NYSE: MS) Real Estate
Payless ShoeSource (NYSE: PSS) to acquire Stride Rite (NYSE: SRR)
Dow Jones & Co. (NYSE: DJ) controlling shareholders, the Bancroft family, meeting to review News Corp (NYSE: NWS) offer
Sallie Mae making management changes for its take-private transaction
Alcan Inc. (NYSE: AL) rejects Alcoa Inc.'s (NYSE: AA) $27 billion offer as inadequate
MGM Mirage (NYSE: MGM) approach by Kirk Kerkorian's Tracinda Corp requires delicate strategy.

The headlines are not too different from the 1980's LBO boom when virtually every headline was associated with a hostile buyout of some sort. Are we approaching the end of the buyout binge? Most likely not. These periods can last for years.

This buyout boom has been fueled by a number of factors. The most important factor has been undervalued stocks, which, in many cases, still remains. In the post tech-telecom bubble of the 1990s, investors went into a cocoon while U.S. company management continued to grow earnings and increase returns on investment.

What will end this buyout boom? My bet is a massive bull market which pushes valuations off the radar screen of private equity.

Tags: AA, acquisition, AL, boom, bubble, buyout, DJ, hostile, irrational exuberance, IrrationalExuberance, lbo, MGM, MS, NWS, private equity, private-equity, PrivateEquity, PSS, SRR, takeover

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Reader Comments (Page 1 of 1)

5-23-2007 @ 11:33AM

The_Village_Idiot said...

The $6b purchase of AQNT sounds a bit bubble-like to me. It's beginning to feel like 1999 again (and we all know how that party ended). The individual investor needs to tread cautiously here as this buyout freenzy continues.