Pre-Crisis Conditions

Corporate Raiders Gamble Hard

ARCHIV - ILLUSTRATION - Das Logo der TUI AG, aufgenommen am 09.06.2013 an der Platja de Muro im Norden der Mittelmeerinsel Mallorca (Spanien). Foto: Julian Stratenschulte/dpa (zu dpa "Reisekonzern Tui macht Türkei-Einbruch bei Sommerurlauben wett" vom 31.03.2016) +++(c) dpa - Bildfunk+++
TUI resport in Malaga.
  • Why it matters

    Why it matters

    Company takeover prices have reached new highs, prompting some to warn of similarities with the inflated prices leading up to the 2008 financial crisis. Despite the risks, financial investors have a lot of available cash that needs investing.

  • Facts


    • The ratio of purchase prices to operating profits has increased, with some buyers paying 10 times operating profits for companies.
    • There is also growing interest from Chinese investors to acquire companies in the West.
    • It’s a sellers’ market for high-quality companies.
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In 2009, a year after the financial crisis began, David Rubenstein admitted that he’d gotten carried away.

“I compare it to sex,” the co-founder of private equity giant The Carlyle Group said at the time, at a conference at Harvard Business School. “You realize that there are certain things you shouldn’t do. But the need is there, and you can’t resist it.”

Seven years later, the markets have once again reached a fever pitch, with exaggerations that alarm investment bankers.

“Financial investors are once again paying maximum prices in corporate takeovers, prices that have reached the level of 2007 or are even higher,” said Rainer Langel, head of the German division of Macquarie Capital Advisers. This has him worried.

“The exaggerations cannot go well in the long term,” he said ahead of the private equity conference in Munich sponsored by Handelsblatt, which began on Wednesday. The industry is at the end of a cycle that usually lasts seven to eight years, he said.

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