Spring has ushered in more liquidity in capital markets, and with it a bounce in optimism. A handful of billion-dollar-plus leveraged buyouts have been announced in recent weeks that have the look and feel of seasons past. A $15 billion deal that Blackstone Group LP, Thomas H. Lee Partners LP and TPG Capital are said to be negotiating with Fidelity National Information Services Inc. appears to signal the return of megabuyouts and club deals, both a hallmark of robust markets long gone.

Purchase price multiples have also risen, averaging out at 8.13 times Ebitda as of early May, Standard & Poor's Leveraged Commentary & Data said.

Compared with other recent take-private and secondary buyout proposals, Thomas H. Lee's $1.1 billion offer for customized healthcare advice company inVentiv Health Inc. at 8.1 times seems a trifle cheap. Oak Hill Capital Partners LP's $815 million buyout offer of fastener distributor Hillman Cos. equates to roughly 9.3 times Ebitda. Even that seems modest against Silver Lake and Warburg Pincus' proposed $3.4 billion LBO of Interactive Data Corp. at 12 times trailing Ebitda. Or try TPG Capital's $1.3 billion buyout of American Tire Distributors Holdings Inc., a price that translates to an astonishing 13 times trailing Ebitda. Not since 2007, when the LBO express was at full throttle, have targets sold for multiples that high.

The elevated valuations are a function of strong demand across the loan and high-yield markets, says LCD managing director Steven Miller.

Miller believes debt multiples, now averaging at 4.37 times Ebitda, up slightly from last year's 4.02 times, will advance. Debt arrangers are already screening deals for seasoned issuers in certain sectors at 6 times to 7 times. As of May 7, leveraged loan volume had jumped up to $4.9 billion, from $403 million the same time last year.

Add to that the improving valuations over the past year as the economy recovers, and pent-up demand on the buy side. By some counts, there's still about $400 billion of private equity overhang that sponsors are just beginning to put to work.

Still, the sponsors may be getting ahead of themselves. Miller argues that debt markets "are recovering, but it's not a go-go market." Where debt multiples are today -- somewhere around 6 times to 7 times -- is "about as far as you can stretch it," he adds.

Meaning, if sponsors want to get to 13 times, they'll be looking at 50% equity contributions. Indeed, both American Tire and Interactive Data involved significant equity checks.

Purchase multiples could rise to 10 times, he says, but that's still a ways from the 15 times at peak levels. Private equity might yet prove him wrong. 

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