US Private Equity Groups find collective strength to meet DOJ probe

Douglas "Doug" Lowenstein has been elected as group President and CEO of the newly launched The Private Equity Council and starts work Feb.2007 . Eleven companies including the reclusive Washington DC based Carlyle Group, have created a new association to conduct research and advocate on behalf of the growing -- casg rich and cash ready -- private equity industry.

Other companies include , The Blackstone Group, Bain Capital, Providence Equity Partners, Texas Pacific Group and Thomas H. Lee Partners. who worked with Bain to buyout Clear Channel for US£26Bn. Apollo Management - potentially buying out Harrah's Corp. for $17.1 billion currently, Hellman & Friedman, Kohlberg Kravis Roberts & Co. (KKR) romoured to be working on US$100 BN leveraged buyout of Home Depot earlier this minths with Texas Pacific, Chicago based Madison Dearborn Partners, and Silver Lake Partners from California.

"Doug" Lowenstein officially left the Washington D.C.-based Entertainment Software Association last week after 10 years.

The Private Equity Council intends to " launch outreach efforts in research, public affairs and government relations to increase the public awareness of private equity " what we used to call lobbying.

Sensing the criticism that is being levelled at the scale of their mega buyouts - over US$300 Bn in 2006, and mindful of federal interest, the new lobby group will no doubt aim to head off criticism.

Federal antitrust prosecutors opened an informal inquiry*** into allegations of anticompetitive bidding practices in the LBO business a few months ago . This antitrust probe is mainly on so-called club deals, Harrah’s, Freescale and HCA etc., in which several private equity firms get together to buy out a company.

The DOJ lawyers want to determine if these "club deals" allow private equity firms to control and influence the bidding process by offering rival firms a chance to co-invest in other deals. You scratch our backs and we'll scratch yours.....

***WSJ October 10th 2006 (A3) Private-Equity Firms Face Anticompetitive Probe
"The Justice Department has sent letters to a number of private-equity firms requesting a range of information and documents related to deals and business practices. "

Standard & Poors issued a Leveraged Commentary & Data (LCD) note on this topic the same day.(subs) The note said S&P is not in a position to comment as to whether private equity firms are colluding to despress pricess, the historical record shows no rising tide of consortium deals, nor any difference in the average purchase price multiple of these deals, compared to single-sponsor transactions.

An interesting set of figures igure they produce shows the average purchase price to pro forma EBITDA ranges of multi-sponsored deals, vs. those with a single buyer.

Since 1997, with multi-sponsored deals averaging at at 7.5x and single-sponsor deals at 7.4x a difference of 0.1% return! So far in 2006 (Oct) , multiple-sponsor deals paid on average 9.3x for properties which is 1.2 % higher than 8.1x EBITDA that private equity firms working alone have paid. It also suggests that they are awash with cash.