By Jennifer Yousfi
Lone Star will pay $223 million (150 million euros) for a 90.8% stake in IKB, considerably lower than the asking price by state-controlled bank KfW Bankengruppe. However, KfW was anxious to close the deal and get IKB’s distressed assets off of its balance sheet.
“This will finally bring clarity and calm,” Green party lawmaker and KfW administrative board member Christine Scheel said in a telephone interview with Bloomberg News. “It was the right decision to sell the bank as quickly as possible.”
IKB has been savaged by the subprime mortgage crisis. The German bank has had to take $15.1 billion in writedowns since the credit crisis began a year ago.
The German government, in cooperation with state-controlled bank KfW, poured more than $11.8 billion (8 billion euro) in bailout money into IKB after the German lender ran out of funds in July.
Lone Star plans to inject an additional 225 million euros into IKB before it can attempt to bring the bank back to profitability. Lone Star also intends to set-up a 200 million euro special-purpose vehicle, which will hold 3.3 billion euros in securities currently owned by IKB, Bloomberg reported.
The IKB deal highlights a growing trend in U.S. private equity: Seeking buyout opportunities overseas.
“There are more opportunities for attractive deals outside the U.S. than there were before,” Michael Holland, chairman of private investment firm Holland & Co., and a former partner at buyout firm The Blackstone Group LP (BX), told Reuters. “It's spawned in part by the emerging market successes.”
Over half of the buyout deals that have taken place in 2008 have occurred internationally, up from just 35% in 2007 according to Thomson Reuters data.
Faster growth in international economies, particularly emerging markets, is sending more U.S. investment money abroad. It’s a trend that Stephen Moseley, president of private equity advisory business StepStone Group LLC, sees increasing as credit standards continue to tighten in the United States and economic growth remains anemic.
While the weak greenback makes U.S. assets attractive to foreign buyers, it also provides a huge incentive for American firms to diversify their holdings into economies with stronger currencies.
According to a survey by London-based research firm Private Equity Intelligence, almost 60% of private equity investors intend to focus on Asia and other emerging markets when picking deals, particularly those of China and India.
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Lone Star to grab 91% stake in Germany's IKB