A piece on the New York Times this week cast doubt over the $8.2 billion bid to buy out newspaper conglomerate the Tribune Company in the US, concerned that the Private Equity markets are caught up with the US debt problems that have surfaced over bad real estate loans.
Sometimes the technology market is dictated to by other non technology markets and while we are not experts in international debt finance, it would not surprise us if this were the case right now. Private Equity groups continually said over the past few years that they had too much money and had to use it, and have gone around buying up telecommunications companies all over the world. Now, perhaps, they have too little.
During the past three years Private Equity groups have bought or agreed to buy EMI, Gemstar, Bell Canada, Intelsat, PanAmSat, Inmarsat, Cinemark, one of the biggest US cinema chains, Palm, TDC, the incumbent Danish telco, ClearChannel, all 4 of the main German cable operators, German broadcaster ProSiebenSat, and the largest French cable operator was created by Private equity deals as Numericable. Today Private Equity groups are chasing UK cable operator Virgin Media in a $23 billion deal. All these deals are funded primarily through debt and while deals that are agreed will still be on the table, because funding is usually irrevocably signed up for, deals which have not yet been agreed, such as the Virgin Media deal, may fail to reach fruition or need some creative tweaks to make them acceptable.
On the Virgin front, CEO and ex-Comcast man Steve Burch has this week announced that he will leave the company for family reasons, and UK newspapers are saying that his wife is unwell, and while this will not stop the buyout of Virgin Media, it may find that it’s not a deal that cannot be done right now anyway.
When panic sets into a market, everywhere there are people saying, ‘Don’t sign any more deals,’ and that would leave many Private Equity employed individuals wondering if perhaps a different line of work might be more profitable for a while. And when deal makers leave, their deals generally fall apart. Also the price of debt will rise, and scrutiny on past deals will likely take a high priority, leading to many of those earlier deals being unraveled or offloaded, potentially at a loss, onto trade partners. The result of that would be a deepening loss of debt confidence and even less liquidity. Suddenly the public equity markets might look a better place for cash to sit and the world will have turned.