March 01, 2007
In light of this week's global stock market correction, those who used to believe that the stock markets would be propped up in tough times by former Federal Reserve chair Alan Greenspan in a so-called Greenspan put are now discussing the possibility of a "private-equity put". The private-equity put refers to underperforming businesses being purchased and taken private.
To the degree that investors believe that a weak business might be a target for a private equity–led takeover, the target’s share price will rise. This upward pressure is due not to an optimistic outlook for profitability, but rather to the fact that a large amount of private equity capital might finance an acquisition at a premium price.
The current buying power of U.S. private equity firms is estimated at up to US$1.25-trillion. The pressure to deploy their capital grows as industry players grow. This confluence of buyer and seller interests is leading to more and larger takeovers of public companies than ever before. The trend is expected to continue, says M&A: Torys' Top 10 Trends for 2007.