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LBO Fever Stays Hot

Look for the sizzling market for leveraged buyouts to get even hotter in 2007.

Private-equity firms spent the past year playing a debt-fueled game of "Can you top this?" They pulled off one huge acquisition after another, unveiling a stunning $21 billion HCA deal in July and going on to gobble up giants like Clear Channel (CCU - Get Report) and Harrah's (HET).

Now speculation is building that buyout firms are racing to pull the trigger on the biggest LBO ever, eclipsing the $25 billion bar set nearly two decades ago when Kohlberg Kravis Roberts bought RJR Nabisco. Predictions of a deal worth $50 billion, $75 billion, or even $100 billion have grown commonplace.

Though those figures are eye-popping, it's hard to argue with the logic. Private-equity firms took in more than $200 billion in new money from institutional investors in 2006, so buyers' wallets are fat. Meanwhile, Wall Street banks keep greasing the wheels by making it easy for private-equity firms to borrow huge sums.

Given the huge egos on Wall Street and the massive banking and management fees at stake, you know that money's going to be spent -- and not quietly.

Some warn that the LBO market could come to a screeching halt if banks start getting skittish about the debt being layered onto companies. Others wonder how all these debt-laden companies will manage to keep paying the bills and keep the lenders happy when the economy turns sour.

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BAC $15.81 0.00%
CCU $19.11 0.00%
C $52.42 0.00%
GS $189.79 0.00%
H $60.54 0.00%


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