Private equity (PE) fundraising increased every year between 2002 and 2007 and exceeded $100bn in 2006. This, and the availability of cheap credit, has provided significant capacity for PE, which has consequently played an active role in the M&A markets over the last few years. In fact, seven of the eight largest leveraged buy-out (LBO) transactions occurred during the 18 months preceding the credit crunch of August 2007. Since August, however, the leveraged markets have become more challenging, especially for larger transactions exceeding €1.0-€2.0bn. The fact that leveraged loans are trading well below par in the secondary market means that banks are finding it difficult to underwrite large primary transactions. At the same time, the mezzanine market appears less constrained given the increased returns available to mezzanine investors after a long period of margin compression driven by oversupply of senior debt.
