Robust PE Market Has Room for More Recovery

Private equity deals in 2011 have improved over 2010, but are nowhere near their 2007 heyday

The Deal magazine sponsored a webcast on the current environment for mergers and acquisitions. Details follow; thanks to Nathan Dutzmann for the analyst coverage. 

  • First-quarter and second-quarter private equity deal flow: 674 deals for a total of $75.6 billion. There were more large ($1 billion or more) deals than in 2010.
  • Volume is up slightly over 2010 and significantly over 2009, but very far below 2007 highs.
  • There was also an increase in exits (though still well-below pre-2008 highs).
  • The current market is robust, particularly for sellers as multiples are on the rise.
  • 2007 high was about 10.5 times EBITDA; dropped to about 5.5x in 2009, now up around 8x.
  • Some PE funds are partnering with corporates on deals (i.e., part-financial/part-strategic deals).
  • Some financial innovations are being seen in strategic deals, but they have not bled over into PE deals.
  • Deals are taking longer since 2008.
  • Much more due diligence (by buyers and sellers).
  • More worry about event risk (particularly U.S. debt ceiling, at present).
  • More worry about ongoing availability of financing.
  • In the near-term, financing looks to be increasingly available and returns on deals have been looking good.  (All contingent on event risk not manifesting, of course.)
  • Large institutions’ (e.g., pension funds) interest in PE is on the rise again.
  • The number of strategic deals is increasing, so there is competition from corporates.
  • Budget pressure will likely reduce interest in defense and aerospace deals.
  • Otherwise, good deal flow seems to be happening in many sectors and many geographies.
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