Where Have All the LBOs Gone?

The leveraged buyout kings must be resisting the strong lure of these new-low losers.
Author:
Publish date:

Where are the leveraged buyouts? Why doesn't KKR take its Gillette (G) - Get Report money -- hey, nice trade -- and take some of these small-cap stocks that are already under liquidation this quarter? Please!

Think about it. We have been reading for months now about how stock mutual funds have had outflows and that managers don't have any cash.

That means they have to sell their losers in order to pay for their

DOT

plays. Many of these DOT plays cost real money.

If you don't have money coming in and you need to catch up -- the description of the vast majority of mutual funds -- you have to blast out of your small-caps. Many small-caps will, when this liquidation process is through, be selling at or through their cash position. I see this painful process happening all over the market, hence the thousand-plus down issues even when the averages are setting highs. That's an amazing predicament.

In the meantime, KKR will be flush with a huge amount of cash, courtesy of its G sale. Other LBO funds have not been heard from for years. With interest rates low and the economy strong, how can these LBO funds resist? How can they not scoop up these new-low losers with intact fundamentals and great balance sheets?

Unless you believe that this market will only love .coms for the next two years, why not go in with management and take advantage of the low prices created by underperforming mutual fund managers? In the year 2002, new themes might emerge; heck, maybe the cyclicals will catch fire because Asia or Latin America will come back, and someone will want these companies more than they do now.

Stranger things have happened.

It is one thing for mutual fund managers to be mesmerized by the Net. But the LBO guys? I can't believe they are sitting on their hands. I know I can't even afford to look at non-.com stocks with no debt and high cash positions as they are all for sale and I will gut my performance.

But that should be nirvana for the leveraged buyout kings. Where are you when America's mutual funds need you?

Random musings:

Anybody know why

Lycos

(LCOS)

isn't moving with the rest of the .coms? Hoo-hah!!

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in the stocks mentioned, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

letters@thestreet.com.