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LBOs Are Back. For Better or for Worse?


Remember all those leveraged retail buyouts that took place in the mid-2000s? According to Fortune, they might be coming back, including in the just proposed Best Buy buyout.

Fortune reports that:

In the second quarter, private equity firms used debt to pay for 64% of the average large company buyout deal, according to S&P Capital IQ. That's the highest that figure has been since the start of the financial crisis.

And while that's down from where it was in 2005 and 2006, when debt averaged around 70%, some deals appear to be approaching pre-crisis levels. For example, private equity firms Carlyle and BC Partners plan to finance their recent $3.5 billion purchase of the industrial divisions of United Technologies unit Hamilton Sundstrand with two-thirds debt, said one banker with knowledge of the deal.

That might be good news for deal volume, but remember what happened with most of the retail chains that were bought out during the boom years? And in today's market, private equity players might not even be able to play the real estate game to finance such deals. On the other hand, some chains, such as Talbot's and Best Buy, would obviously benefit from not having to answer to Wall Street.

So the question is: is this good news for the retail real estate industry or bad news?

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Elaine Misonzhnik

Senior associate editor Elaine Misonzhnik has been writing for National Real Estate Investor since June 2006 and has covered commercial real estate for more than 12 years. She first became...
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