Monday, September 25, 2006

Bidding wars in private equity could be here to stay

We are lead to believe that private equity is a clubby, old boys network where some of the brightest minds turnaround companies for the betterment of the companies themselves as well as investors both before the buyout and after.

We are also lead to believe that private equity firms are competitive, but often keep things in check with their fellow private equity groups when one party is all but ready to make a transaction a "done deal." The thought is that a lot of PE deals are done with a consortium of private equity shops, and hence, having the support of other firms can be invaluable when deals sizes get large.

Recently, however, the market saw KKR and Bain Capital attempt to make a last minute bid on Freescale after it was all but certain that Blackstone would be suitor. Eventually Blackstone won the bidding war, but the firm had to increase its bid by 10 percent. The New York Times' Andrew Ross Sorkin feels that this scenario could be a recurring situation and have a huge effect on the bidding wars in the buyout space.

Could partnerships be over? Probably not, but with so much money chasing a select number of deals, the politeness could become a rarity.

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