Private Equity Investment Surges in 2006 Though many of this year's big business deals were corporate mergers, Google acquiring YouTube for example, some of the flashiest deals involved private equity firms. These firms, composed of money collected from wealthy individuals and institutions, were used this year to buy up all kinds of companies.
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Private Equity Investment Surges in 2006

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Private Equity Investment Surges in 2006

Private Equity Investment Surges in 2006

Private Equity Investment Surges in 2006

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Though many of this year's big business deals were corporate mergers, Google acquiring YouTube for example, some of the flashiest deals involved private equity firms. These firms, composed of money collected from wealthy individuals and institutions, were used this year to buy up all kinds of companies.

RENEE MONTAGNE, Host:

The business news starts today with corporate mergers.

(SOUNDBITE OF MUSIC)

MONTAGNE: These companies often get saddled with huge amounts of debt in the process, though that seems not to have deterred investors. NPR's Jim Zarroli reports.

JIM ZARROLI: There are also scattered around the office lots and lots of baked goods.

STEVE PRESSER: The bakery that we happen to own has been sending us some baked goods as gifts over the holidays.

ZARROLI: Steve Presser is a partner at the firm.

PRESSER: The problem is it's not a bakery like you and I think of a bakery, it's a big manufacturing complex. So when they send us a brownie, they send us a whole pallet full of brownies.

ZARROLI: How big is a pallet?

PRESSER: About six feet wide in this case, by six-feet deep and six-feet tall, all brownies.

ZARROLI: Bob Kaiser, an analyst at Thomson Financial, says private equity funds like Monomoy now account for about 27 percent of all mergers and acquisitions, two to three times their historic average.

BOB KAISER: What's going on today is really unprecedented, the extent, the magnitude that private equity is participating in U.S. M&A.

ZARROLI: Steve Presser says there is so much private equity money out there right now that it's getting harder for firms like his to find companies to buy.

PRESSER: We see more and more funds out there, private equity funds, competing to buy the same companies, paying what I think everyone regards as very aggressive valuations for those companies.

ZARROLI: Lynn Tilton heads Patriarch Partners, which invests in what are called distressed companies. Tilton says investors right now seem to be surprisingly optimistic. They shrug off higher interest rates, rising energy prices and a persistent U.S. budget and trade gaps. And for now she says everyone's happy.

LYNN TILTON: So long as nobody flinches, nobody loses money. The things that used to make markets go down no longer move the markets downward.

ZARROLI: But Tilton says if the economy slows down too much, a lot of these highly leveraged companies won't be able to pay off their debt.

TILTON: You have, you know, much higher multiples, you have higher leverage, and it absolutely should lead to a downturn and to some of these deals failing.

ZARROLI: Jim Zarroli, NPR News, New York.

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