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What should Goldman do with its $20 billion?

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April 25, 2007 – Comments (2)

The rich folks at Goldman Sachs Group (NYSE: GS) passed the hat and raised a cool $20 billion for its latest private equity fund.  It could mean billions in profits for the firm, its employees and investors.  What companies will it buy?

Keep in mind that most buyout deals include a lot of debt.  So assuming a 5-to-1 leverage ratio, Goldman has the fire power to spend $100 billion.  To put things in perspective, this is roughly the same as the GDP of New Zealand.

Yet Goldman will not be the only mega fund.  It looks like the Blackstone Group will raise a $20 billion fund as well. 

As for the largest buyout deals, they are still below $50 billion.  Examples include TXU (NYSE: TXU), Harrah's Entertainment (HET), and Clear Channel Communications (CCU).  These companies have the key elements that attract private equity firms like strong brands, barriers to entry, healthy cash flows and decent growth prospects.

Although with the emergence of the mega funds, the deal levels may break the $50 billion barrier.

So what companies do you think Goldman should splurge billions on? Let me know!

2 Comments – Post Your Own

#1) On April 25, 2007 at 2:26 PM, joewhite101 (91.76) wrote:

They could probably pick up DELL for something in the neighborhood of 60 billion. The company makes money, has lots of assets, and is need of a makeover outside the public eye.

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#2) On April 25, 2007 at 4:39 PM, XMFKhat (88.91) wrote:

I don't know about specific companies, but Matt Koppenheffer listed some characteristics to look for:

"Typically, PE firms are looking for companies that generate a lot of free cash flow, since it's the excess cash the companies generate that they use to pay down the debt they've loaded on. In the same vein, stable and predictable businesses also make good candidates, because a business that will get hit hard during economic down years will have trouble keeping up with debt payments." 

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