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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.
About the Author
Ben Warwick, Quantitative Equity Strategies
Veteran investment strategist Ben Warwick brings 20 years of investment management expertise to AdvisorOne.com in his blog, Searching for Alpha. His market and economic insights provide readers with an insider’s view on generating alpha through asset allocation, the use of strategic portfolio “tilts” and alternative investments.
Ben Warwick founded Quantitative Equity Strategies (QES) in 2002 as a platform for implementing his quantitative investment strategies. The firm manages assets with traditional long-only equity and fixed income, private equity, managed futures and alternative investment mandates. QES has developed an industry leading expertise in building investment programs that can replicate alternative returns, while offering daily liquidity and transparency. These products include the HFRq, a hedge fund replication strategy developed in concert with Hedge Fund Research in Chicago; the Managed Futures Beta Index, with Aspen Partners; and the Nomura QES Modeled Private Equity Returns Index (PERI), which was developed with Nomura Bank and Preqin, the leading source of information in the private equity industry.
He is the author of several books, including "Searching for Alpha: The Quest for Exceptional Investment Performance," (Wiley, 2000) and "The Handbook of Managed Futures," with Carl Peters, (McGraw-Hill, 1996). He can be reached at ben@qesinvest.com.
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