News last month that the New Horizons spacecraft zipped by the former planet Pluto at 36,373 mph, snapping pictures as it went, drew raves from the rocket science community. Our attention was taken by one ironic fact: the probe’s generator runs on plutonium.
Rare elements were much on our mind as we’ve tracked the paucity of new buyouts in the leveraged loan pipeline heading into the last weeks of summer. And those deals we’re seeing are a mixed bag in terms of quality.
For one thing, total leverage seems again to be reaching radioactive levels. Thomson Reuters LPC reports total debt to Ebitda for middle market institutional buyouts “skyrocketed” to 6.5x for the third quarter. Admittedly, that’s on a relatively small sampling, but the statistic points to a broader trend.
Higher leverage is being driven by similarly gravity-defying purchase price multiples. Of the four middle market LBOs where information is available, all were over 12x, and three were over 15x. This speaks to the fierce competition for new properties being engaged in by both private equity and strategic corporate buyers.