Private Equity Pushing the Limits

It is worth noting that the ability of private equity to participate at a higher price level than the market was expecting helped get shareholders of Beckman Coulter a very nice price for their shares.

Danaherended up paying $83.50 a share in cash for Beckman, after facing a contest from two private equity bids, according to Robert Kindler, who heads M&A at Morgan Stanley, which advised Danaher on the deal. Sources also tell me that Perkin Elmer was in the final bidding.

In an interview on CNBC's "The Strategy Session," Kindler noted that private equity firms are able to amass financing for prospective deals at as much as seven times the anticipated ebitda of the company they want to acquire.

That so called “leverage ratio” (the ratio of debt to ebitda) has been moving steadily higher for the last year.

The fact that private equity firms were able to amass financing to try and buy Beckman at that level of leverage is a good sign for other deals or auctions that include private equity bidders.

Simply put, it means private equity has the ability to bid higher for assets than some may have previously believed.

While some deals may get financed at seven times ebitda, the deals still require more equity than we saw during the credit bubble and still contain a few more covenants.

But, even that appears to be changing rather quickly these days…something that bears close attention from investors of all stripes.

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