After all, there is hardly a project with more global economic significance than widening the Canal. International trade routes are absolutely dependent on it and it has even given its name to a class of cargo vessel (Panamax), which will presumably get reclassified once the Canal is widened.
So, how come something as vitally important to the global economy as the Canal widening costs a mere $6-7 billion (OK, $10 billion...) and the takeovers of mostly unknown mid-level US and European companies by private equity funds are (were) happening at multiples of this amount? The relative value comparison between the two is completely out of proportion and by this yardstick - "One Panama" = $10 billion - such LBO transactions appear grossly overvalued.
Sallie Mae: 2 1/2 Panamas
Cadbury (just the drinks unit): 1 1/2 Panamas
First Data: 2 1/2 Panamas
TXU: 4.5 Panamas
...and so on and so forth. Just for the first six months of 2007 there were LBO deals announced for a total of 61.6 Panamas, while the value of LBO's around the world for all of last year reached 75 Panamas (see chart below).
Thus, the question quickly springs to mind: how much greater is the economic value of those LBO's vs. the real-life economic benefit of widening the Panama Canal? Seventy five times? C'mon... I quickly note that just five years ago total annual LBO activity came to a more reasonable 10 Panamas.
Maybe I am comparing apples and oranges here but keep in mind that they are both fruit, i.e. economic enterprises run for profit. Since as investors we cannot buy the Panama Canal for a relative value play, we just have to be cognizant that LBO's are currently grossly overvalued vs. something that has a solid and tangible economic "worth".
To coin a phrase, let's say that LBO finance has "Panamax-ed out".