The largest leveraged buyout ever was the nearly $ 50 billion purchase of Canadian telecommunications group Bell Canada Enterprises (BCE) by a group of private equity firms (a leveraged buyout is when a company is bought primarily using a lot of debt, rather than cash or stocks – hence the term “leveraged”).

The deal was signed at the end of June 2007, literally weeks before the onset of the credit crunch. It was to be funded with just over $ 30 billion in debt.

But, as Bloomberg puts it, the deal “turned out to be the last and glorious jump in the buyout frenzy of the past decade, when debt-fueled buying for trendy companies soared to ridiculous heights.”

By the time Lehman Brothers collapsed, just over a year later, the deal with BCE had collapsed as well.

Why am I lifting it now? Because it looks like the buyout market (along with everything else) is getting excitable again.

Deal making hits record highs again

Private equity groups Blackstone, Carlyle and Hellman & Friedman have raised nearly $ 15 billion, the FT reports, to fund a $ 34 billion buyout of Medline, one of America’s largest medical supplies makers.

It’s not yet 2007 levels in terms of size, but it’s the biggest such deal we’ve seen in the post-2008 era. And in terms of number of transactions and overall value, we’ve already surpassed the 2007 record.

The guarantees for lenders are also very low by historical standards. It has been an ongoing process in these days of reliable bailouts.

“The environment could not be better for borrowers,” quotes FT Christina Padgett of the rating agency Moody’s. “But it generates a lot of old-fashioned aggression. Some of them are reminiscent of 2007. ”

It’s not the only bustling neighborhood. Something else is at record highs: investment banking fees. This year, the big banks and advisers have already earned more than $ 110 billion through a combination of IPOs, mergers and acquisitions and acting as underwriters for the debt issuance.

To be fair, this combined activity surpassed the previous high of 2007 some time ago, in 2017. But in the last couple of years it has really increased.

In short, we have record stock issues, record IPO volumes (in the US at least), record deals – it’s a hot market, with comparisons to the dotcom era and the days leading up to the financial crisis abound.

This is something that investors can encourage right now; transactions tend to drive up stock prices. It can be annoying that a business that you hoped to hold onto for the long term gets bought out today at a price that doesn’t fully reflect your hopes – but, let’s be honest, most of the time none of us shed too many tears though. a company we own receives an offer.

It is particularly interesting that while no one else seems to recognize the value of the UK market, private equity investors certainly do.

Why registration agreement activity is a red flag

However, we have to make a caveat.

There’s a reason why trading activity and investment banking fees tend to hit all-time highs before crashes and then plummet afterwards. As with the gasoline, apple or toilet paper market, supply and demand are also a major factor in stock prices (and debt).

When demand is high (that is, stock prices are high and rising and covenants are lax and only getting worse) then the City and Wall Street want to fuel the machine. Just as a miner will dig more holes and vomit more rocks when commodity prices rise, so bankers will bring more offers to the market.

And just as a manic commodity boom sees oil companies offering to probe the depths of the Mariana Trench without batting an eyelid, or miners digging out their shovels for increasingly tenuous plots of war-torn soil, the quality agreements in a boom in financial markets is deteriorating.

When will supply exceed demand? Who knows, is the simple answer. All you can really say from this data is that we are much closer to this point than a few years ago.

So it’s just one indicator among many to add to your “where are we in this particular cycle?” ” bucket.

I suspect there is still some way to go. The world’s dependence on cheap credit has instead tied the hands of central bankers (even if they are loath to admit it) and it will only take wavering to send them back to the drawing board on rising prices. interest rate.

In the meantime, as we have already noted, this is another good reason to invest at least part of your portfolio in the UK.

Private equity buyers may be considered smarter than average, but at the end of the day, they’re just humans and their herd instinct is just as strong as anyone else’s. If they see a deal done, they’ll want to know what they’re missing. And right now the UK is one of their favorite places.

This is something we will more than likely discuss at the virtual MoneyWeek Wealth Summit in November. Don’t miss it!