Blackstone expects fewer 'mega deals' in near term, sees opportunities for smaller deals

By Jennifer Lanning Drey

Portland, Ore., Aug. 13 - The Blackstone Group president and chief executive officer Tony E. James said the company expects financing constraints to lead to fewer of what he called "mega public-to-private" deals in the overall market until debt markets correct themselves.

However, he added that room remains for smaller deals, which he said could be upwards of $1 billion.

"The mega public-to-private in this environment is going to be tough. I do think credit markets will stabilize at some point, and when they do, hopefully, prices will be a little lower - and I think they will be - and the returns will be attractive and the volume of the business of that sort will be good," James said Monday during the company's second-quarter earnings call.

In the meantime, Blackstone is looking at opportunities in areas such as preferred stock and smaller buyouts.

Additionally, Blackstone is beginning to consider debt securities that are trading at distressed levels but are not distressed from a credit perspective, as well as revisiting companies on which it was overbid in the past.

"We're starting to look at those as being very attractive investments where, frankly, I think we may be able to buy the debt in these companies and get a higher return than on the underlying equity. We're looking hard at that, and that's pretty appealing to us," James said.

Overall, in its private equity segment, James said the company sees no sign of a slowdown in the U.S. economy and European economics are stronger than they have been for the past five years.

James believes arranging new deals in the current debt environment will be harder but that the atmosphere will also force many marginal players out of the industry.

Blackstone is a New York-based global alternative asset manager and provider of financial advisory services.

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