April 25, 2007
The rich folks at Goldman Sachs (NYSE: GS ) passed the hat and raised a cool $20 billion for the company's latest private equity fund. With potentially billions in profits at stake for the firm, its employees, and investors, what companies will this new fund buy?
Keep in mind that most buyout deals include a lot of debt. Assuming a 5-to-1 leverage ratio, Goldman has the firepower to spend $100 billion -- roughly the GDP of New Zealand, for comparison. (Not to be outdone by Goldman, it seems the Blackstone Group will raise its own $20 billion fund as well.)
Historically, the largest private equity buyout deals, including the purchases of TXU (NYSE: TXU ) , Harrah's Entertainment (HET), and Clear Channel Communications (CCU), have never topped $50 billion. Companies like these have key elements that attract private equity firms, including strong brands, barriers to entry, healthy cash flows, and decent growth prospects.
With the emergence of megafunds like Goldman's, however, don't assume that $50 billion barrier will necessarily stand for long.
What companies should Goldman splurge billions on? Let me know on my CAPS blog.
Further Foolishness? Capital idea:
TXU is a former Motley Fool Income Investor pick.
Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 3,449 out of 27,827 in CAPS.