March Group - Private Equity Available Capital
Posted by Michelle Segura on Mon, Jun 15, 2009 @ 08:22 PM
US Private Equity Overhang and Dry Powder
Hi all. I trust you all had a great week and will come back from the weekend refreshed and invigorated. If not, drink some strong coffee!!
Some of you may already be aware of this, but if not, the private equity community was all a buzz over a report released last week by the AMAA (Alliance of Merger and Acquisition Advisors - we are members) and Pitchbook. In this report, they announced that the PEG "overhang" had reached a record $400 billion dollars. "Overhang" (aka, dry powder) refers to the amount of capital that equity groups have raised that is sitting simply waiting to be invested. I’m also referencing an article from Thedeal.com: Dry Powder.
As you can see from these this graph, and two articles and of course as we have been reporting here for months, PEGS have a tremendous amount of capital available to invest:
Here are the highlights-
"This statistic supports what we've all known - there's a lot of money available that needs to be invested. In order for capital and companies to find each other, sellers need to continue adopting a more realistic view of the market and valuations," said Matt Hawkins, AM&AA Summer Conference Chairman and Partner, Alliance Equity. "The combination of sellers recognizing the recent decrease in multiples, accompanied by the massive amount of dry powder available for investing, yields the right recipe for more deal making to occur."
"With $400 billion available for investment, there is currently enough dry powder to more than support the deal activity of 2004, 2005 and 2006 combined with the use of moderate leverage. Private equity firms continue to raise additional capital as well, with 18 new funds raising $25 billion in the last 60 days alone. As economic conditions continue to stabilize and the credit markets start to reopen, the private equity industry is poised to get back to deal making."
"The fourth quarter is going to tell the story," continued David Cohn. "This Summer is the time for a 'boot camp' for both private equity and intermediaries to refresh their deal flow and be prepared for the Fall."
The figure is also a good indicator of just how much the drying up of leveraged lending has affected buyout firms: That $400 billion would likely have given LBO shops a good $1 trillion in dealmaking fire power when debt markets were roaring back in early 2007.
As we also learned from Lake Capital on the round table discussion on June 12th (who made 12 investments in 2008 alone) many PEGs continue to be active, especially in the middle-market. With this much dry powder available, more and more PEGS will become active as the year progresses. This is great news for The March Group and our clients!
News Articles: