European investors are forsaking the stock markets and turning to the private sector, with more than €100bn (£67bn) of deals and €50bn committed to a series of huge private equity fundraisings this year.
What makes 2005 different is the scale of money swamping the market, with the big players easily raising €5bn for "mega-funds". US giant Kohlberg Kravis Roberts has pocketed €4.5bn and CVC €6bn. Market heavyweight Blackstone Group is completing a €10bn global fundraising.
The move to go private is having an effect on local stock exchanges, with European equity markets shrinking for the first time in history. According to Citigroup, pan-European equity markets contracted by 1.2 per cent in 2005. In the late 1990s, these markets were expanding by 5 to 10 per cent per year.
Tom Lamb, co-head of Barclays Private Equity, said: "One of the holy grails in the UK is who will be the first to buy out a FTSE 100 company. It's now within reach." Recently up to 60 per cent of UK merger activity was private equity led.
The trend is set to continue in the near-term as institutional investors are keen to get exposure to the higher returns of private equity, markets are good, corporates willing to deal and the banks happy to lend.
"It's a wonderful confluence of events," said Jon-athan Russell, head of global buyouts at 3i, the stock market-listed private equity group."But, you can't get away from the fact the industry has raised about 20 per cent more than last time".
However, with a lot of money competing for a finite number of assets, prices are rising rapidly. "We are not comfortable with the prices being paid in many of the auctions at the moment. Therefore, we are being less active this year," said Joe Baratta, a partner at Blackstone Group.
In the absence of an economic meltdown, two key issues may see the party end. "Certainly the cheapness and availability of debt is one of the factors that has been fuelling the private equity market," said Mr Lamb. "The big deals are going to get bigger, but it is still very competitive. But if the banking market slows down, you can't do the big deals." Others believe that it will take only a half-dozen major deals to fall over to shatter industry confidence.Reuse content