KKR’s leveraged buyout of TXU might be the first of many private-equity M&A deals, but traditional utility mergers also will increase.
Richard Stavros is executive editor of Public Utilities Fortnightly.
The numbers boggle the mind. Private-equity firms raised $221 billion in 2006 and have $2 trillion in purchasing power combined with their other assets. You read that right: $2 trillion. For perspective, that was the equivalent of the gross domestic product (GDP) of France in 2005. Oui!
Jeffrey Holzschuh, chairman, global power and utility group, Morgan Stanley, stunned the crowd at the Exnet Annual Utility M&A symposium in New York City earlier this year when outlining just how much money financial firms have accumulated for investment in all sectors of the economy. Incredibly, this is an uptick from the previous year. “Last year I spent most of my time talking about alternative investors and alternative asset classes. I wanted to tell you they are bigger and badder than they were last year,” Holzschuh said.
He’s not kidding. Private-equity deals made up one-fourth of all U.S. mergers and acquisition (M&A) in 2006, Holzschuh said.
Moreover, financial investors like hedge funds could grow to $4 trillion in assets by 2010, and the new-on-the-scene infrastructure funds (which hold assets longer and have a lower return threshold) have raised between $100 billion and $150 billion globally, according to Morgan Stanley. An estimated $1.6 trillion in infrastructure investment is predicted over the next 5 years.