Fancy A Pizza Parlour? A Snip At $5m

It’s only June and mergers and acquisitions deals are over $2.3 trillion and set to beat last year’s record of $3.6 trillion. On average, this year, buyers have paid a whopping 50 per cent over market capitalisation for their acquisitions, double the premium paid last year.

Private equity deals accounted for $489 billion of that, representing 21 per cent of all M&A activity, In Europe private equity firms borrowed 115 billion euros and have raised $263 billion in funding. The prices paid seem barmy. Blackstone bought the Strada pizza chain for $5 million per site. Terra Firma’s offer for EMI assumed a borrowing requirement which meant that the interest would account for 80 per cent of EMI’s earnings. Who, one wonders, will have the money in three years’ time – the upper limit to the the time private equity funds like to own a busines – to buy all this stuff at a profit to the PE funds? Goddness knows How silly can it all get? The answer is, probably, sillier still. These financial types are ace at spinnig numbers; nerdish when it comes to relating to reality. Look at the crazy prices paid in the junk bond boom. And where did it get them? Into jail.

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