But while bankers say there is great potential for more deals, with a number already in the pipeline, technology stocks carry bigger risks than the stable consumer products companies and smokestack industries that typified past going-private buyout waves. Over the last few months there seems to be more buyout activity as these valuation discrepancies widen. If deals are to take place, said Roger McNamee, whose Silver Lake Partners led the Seagate buyout, they ll look different than the leveraged deals of the past. Classic buyouts of the past have targeted companies whose cash flow could pay off all of the debt, but the Seagate deal is structured with substantial amounts of private equity. In the end, leveraged transactions reach their payout when the companies are refloated as public companies.
Technology companies are no different.
But banking on a revival of disk drive makers and packaged software producers has its own set of risks. Tech products can simply become obsolete overnight, unlike the cigarettes or hardware store items that fuelled past buyout waves. McNamee said that Seagate was just one of a large number of undervalued but profitable tech companies that are mature businesses. It s a large number, McNamee said. Deals take time, he said, pointing out that the complicated Seagate transaction took two years of planning and negotiations.