Private Equity Players See Signs of Excess in Buyout Market

BERLIN - The buyout market is showing signs of the excesses that led to the financial crisis, leading private equity managers say.

Speaking at an annual private equity conference in Berlin, Howard S. Marks, chairman of Oaktree Capital Management, said investors continued to pay high prices for companies and were tapping into growing amounts of cheap credit to finance takeovers.

“We are seeing some elements of precrisis behavior,” Mr. Marks said on Tuesday at the SuperReturn International 2013 conference. “We are seeing people engaging in bullish behavior.”

His comments come after a series of recent multibillion-dollar deals, which have raised expectations that debt-fueled buyouts are back.

Michael S. Dell and Silver Lake struck a $24 billion deal this month to buy Dell, the computer maker. And Warren E. Buffett’s Berkshire Hathaway and the Brazilian firm 3G Capital have agreed to pay $23 billion to acquire H.J. Heinz, the maker of Heinz ketchup.

As fears wane over the European debt crisis and the! American presidential election, access to capital markets has slowly returned, including debt financing for potential deals.

Over the last two years, investors have flooded into the world’s debt markets. The greater demand for bonds and other products has allowed firms to tap into the capital markets, including the so-called high-yield market that has traditionally funded riskier investments.

The growing ability to finance deals has led to increasingly higher price tags on potential deals, according to Leon D. Black, chief executive of the private equity giant Apollo Global Management.

“With easy money, there’s a temptation to pay higher prices,” Mr. Black said on Tuesday “There’s no institutional memory, we know that about Wall Street.”

For Mr. Black, the cost of potential European deals remains higher than investments in the United States despite the lack of economic growth and continuing political risk across the Continent. Cheap short-term funding from the European Central Bank has eased pressure on local banks to sell badly performing investments, while many corporate buyers have been able to raise money in the financial markets to finance their divisions.

There are opportunities, particularly in so-called distressed assets like loan portfolios that banks are looking to shed, though the returns are unlikely to match those of previous eras, he said.

“We like opportunities in distressed assets in Europe,” Mr. Black said. “If the M.&A. spigot opens up, you may see buyouts, but with high-teen returns.”

Investors also say they have learned lessons from the financial crisis.

In the boom times, private equity giants like Bain Capital secured multibillion-dollar takeovers by loading companies with debt. Some of these investments ran into trou! ble when ! the financial markets imploded, and prompted some private equity firms to shy away from large deals.

To succeed, investors must redouble their efforts to help companies improve revenue, not look for profit through highly-leveraged deals, according to Mark Nunnelly, managing director at Bain Capital.

“If you’re making investments driven by the capital markets, you take more risks,” Mr. Nunnelly said on Tuesday. “Wall Street tends to have a short memory.”