The best private equity deal to ever fall apart

    When news started to trickle out two weeks ago that a consortium of private equity firms were in talks to buy up a Fortune 500 provider of real estate and financial services called Fidelity National Information Services, chatter among financial types went right off the scale. At a proposed $15 billion, the offer, from Blackstone Group LP, Thomas H. Lee Partners and TPG Capital, would have been the largest leveraged buyout since the end of the great PE boom in 2007.

    But by last Monday, the talks had fallen apart. Fidelity National (FIS) was reportedly dissatisfied with the consortium's offering price. Sources on the private equity side of the deal said that Fidelity wanted considerably more than the $32 a share the consortium was offering. So the company decided to pursue a leveraged recapitalization instead. That might sound like a failure, but in these times, it's not. At all.

    The deal's collapse isn't a historical footnote -- to folks inside the PE industry, it marked something of a watershed moment. Ours may no longer be the age of the private equity mega-deal, but mere talk of a $15 billion dollar takeover seemed to indicate that, slowly but surely, private equity is on its way back.

    "There are clearly indications that things are getting better," says Shawn Hessing, National Managing Partner for Private Equity at the auditing firm KPMG. "We are seeing deals pick up. The debt markets are improving. I do think things are still a little pricey - the credit terms are not what they were," he says. But Hessing adds, "there's a sense that maybe the bottom has been reached and it's now time to buy."

The death and surprising rebirth of the mega-deal

    It's been a troubled few years for the buyout business. Back in 2006-2007, at the height of the boom, private equity seemed to have a hand in almost every major brand in the country, and mega-deals in the $30 billion plus range were not at all uncommon. In 2007, there were a whopping 2,859 private equity deals done in the U.S. with a median valuation of around $116 million dollars, according to John Gabbert, Founder and CEO of financial data provider Pitchbook.

    Then the meltdown came. Credit markets seized up and leveraged buyouts all but evaporated. PE firms were still involved in other sorts of work - distressed transactions, workouts, but buyout kings like Blackstone's Steven A. Schwarzman were clearly keeping their powder dry.

    By 2009, the number of deals had dropped to 1,072, with a median valuation to $61.3 million. The credit crunch meant that getting the funding necessary for a large-scale leveraged buyout was more difficult then it had ever been before. Mega-deals were dead. "A year ago, there was essentially no leverage available to complete deals. It didn't matter what size or what industry, the market was closed." says James Coulter, a founding partner at TPG Capital.