Is a FTSE100 buyout definite?

Is a FTSE100 buyout definite?

The year 2006 has been hailed as the year of the first-ever FTSE100 buyout.

The armada of private equity firms has raised an arsenal of funds powerful
enough to blow away most firms in the top index.

Talk has suggested that the likes of Rentokil Initial, Compass Group and
Ladbrokes are likely to be offered up to feed the insatiable private equity
beast.

One thing that seems to have escaped the building frenzy around the
possibility of a FTSE100 buyout, however, is the issue of whether the firm that
does eventually perform the transaction will be able to add value to the new
trophy asset.

The buyer has to be confident that it can run the acquisition more profitably
than the market price suggests. This is where a blue chip buyout turns tricky.
Unlike private and smaller listed companies targeted by private equity, scrutiny
from fund managers and institutions is intense.

With this additional scrutiny it is less probable that the UK’s top 100
companies are undervalued, and this in turn makes it difficult to find a
suitable target that can be purchased for the right price.

Many private equity firms have the financial muscle to buy, but the question
is, would any of them be interested in doing so – when the market has already
priced in the effects of the respective problems weighing down a target company?

Eventually a FTSE100 buyout will happen, we just might have to wait a bit
longer than everyone has suggested.

Nicholas Neveling edits the corporate finance page

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