US buyout money heads abroad amid financing drought

[OhioChick]

Source: Reuters

22 Aug, 2008, 0000 hrs IST, REUTERS

NEW YORK: As the credit crunch continues to dog their financing markets, US buyout firms are investing an increasing proportion of their capital overseas. That trend is only going to continue thanks to an increasingly global economy and growth rates overseas looking higher relative to the United States.

So far this year, more than half the takeovers announced by US private equity firms involved foreign targets, up from 35% in all of 2007, according to Thomson Reuters data. “There are more opportunities for attractive deals outside the US than there were before,” said Michael Holland, chairman of private investment firm Holland and a former partner at buyout firm Blackstone Group. “It’s spawned in part by the emerging market successes.”

US-funded deals in the past year include JC Flowers boosting its stake in Japan’s Shinsei Bank, Washington DC-based Carlyle Group investing in Australian equipment hire firm Coates Hire; and Hellman & Friedman buying a stake in France’s Gaztransport & Technigaz. This is not the first time US private equity investment has been weighted in favour of foreign deals. Five years ago, buyout firms’ investment overseas was 52% of the total.

But from 2005 through 2007, easy financing fuelled big US deals such as the $31.8 billion takeover of energy giant TXU, skewing the deal flow to the United States. Stephen Moseley, president of private equity advisory business StepStone Group, sees increased US investment abroad, partly because growth rates overseas are higher, and as a weak dollar encourages diversifying outside the home base.

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