Cash In on the Great Buyout Boom

You don't think management was, how shall I put it, motivated to do everything it could during the holiday season to pull in every last dollar of sales?

The Borders Group story isn't an isolated one. Last year, Toys "R" Us and Neiman Marcus were purchased by private buyout companies. Last week Burlington Coat Factory Warehouse(BCF Quote) auctioned itself off to Bain Capital for more than $2 billion. K Capital Partners, a hedge fund, wants management at OfficeMax(OMX Quote) to forget about its plans to turn the company around and, instead, put it up for sale. Not hard to see why: A recent report from Goldman Sachs estimates that OfficeMax would fetch $39 to $44 a share in a sale. Not bad for a stock now trading near $27.

Catalysts, Flush With Cash

The amount of money raised for private buyout funds is staggering. In March, the Carlyle Group raised $7.85 billion for a U.S. buyout fund, the largest buyout fund ever, at that time. This month, either Kohlberg Kravis Roberts, now raising $10 billion to $12 billion for a new buyout fund, or the Blackstone Group looking for up to $13 billion for a new fund, will take the title.

In 2005, U.S. private-equity groups raised $152 billion, an increase of 65% from 2004, according to Dow Jones Private Equity Analyst. Of that, $106 billion went to buyout funds, the most ever, and 90% more than 2004's total.

And that's not the end of the money available to "incentivize" CEOs to improve their companies' performances. Last year was the most active worldwide since 2000 for mergers and acquisitions, with more than $2.7 trillion in deals, Thomson Financial says, up 38% from 2004.

And it's different this time: Unlike 2000, when companies used their stock to acquire other companies, in 2005 they used cash. Only 11% of the year's deals were all-stock transactions. Some of that cash has come from accumulated earnings on company balance sheets, but more has come from the sale of new debt in the bond market. For example, Oracle(ORCL Quote) plans to sell $5 billion of debt to fund its purchase of Siebel Systems(SEBL Quote).