Bloomberg News

Gap, Symantec May Outperform as LBOs Pick Up, Deutsche Bank Says

June 07, 2011

June 7 (Bloomberg) -- Private-equity firms may be starting a wave of leveraged buyouts that could help companies with strong potential to be acquired perform better than the overall market, according to Deutsche Bank AG’s Bankim Chadha.

Firms have more than $1.5 trillion in purchasing power available to finance deals and possible target companies have cash flow levels that can support debt repayments, New York- based Chadha, the firm’s chief U.S. equity strategist, wrote in a note today. Investors should consider buying a basket of 50 stocks, including Gap Inc. and Symantec Corp., deemed the top potential LBO candidates in the Standard & Poor’s 1500 Index, he said.

Global merger and acquisition activity has picked up this year, increasing 22 percent by dollar value to $1.04 trillion compared with the same period in 2010, Bloomberg data show. Companies are beginning to spend their record cash hoards and take on debt after credit markets dried up following the 2008 stock-market rout. The availability of financing and low rates, along with corporate free cash flow and sales growth potential mean private-equity deals will follow, Chadha says.

“We think conditions are very supportive of an up cycle in LBOs,” Chadha wrote. “Credit markets are robust, equity valuations look attractive, and corporate fundamentals strong.”

--With assistance from Sarah Rabil in New York. Editors: Joanna Ossinger, Michael Regan

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net


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