Whats driving the private-equity boom?
Interest rates are low, giving buyers access to cheap credit for huge transactions. And private-equity firms have seen inflows on the order of tens of billions of dollars from pension funds, state retirement plans and wealthy individuals. Last year, private-equity funds broke fundraising records, raising more than $100 billion, says Richard Peterson, a senior researcher at Thomson Financial, providing them with ample spending money. And company valuations aren’t extreme, he says: This year, most merger transactions have had premiums of about 20%. As recently as 2000, the premium for a “megadeal” was about 40%, according to Mr. Peterson. A strong stock market is also fueling the dealmaking boom, says Charles Geisst, professor of finance at Manhattan College. In some cases, investors are eager to cash out of stocks that have recently rallied. And private-equity firms are frequently buying public firms with the intention of making them more profitable — frequently by aggressively cutting
