Financing Beginning to Loosen for Private Equity Groups
Posted by Carl Doerksen on Thu, Mar 04, 2010 @ 12:44 PM
Earlier this week Reuters ran an article covering a "summit" comprised of key players in the private equity arena. Called the "Reuters Private Equity and Hedge Fund Summit", it was being held earlier this week in several cities concurrently. The main theme was the on-going recovery in the private equity industry.
According to Reuters, private equity funds that were hit by the storm of the financial meltdown are now benefiting from a return of bank financing, deals, and pockets of opportunity to exit investments.
As financing and the ability to leverage deals returns, private equity firms are competing hard for deals and auctions are drawing crowds of names. "You have got a huge amount of private equity money chasing a small amount of decent assets that are being brought to market," said Simon Tilley, head of the European Financial Sponsors Group at Close Brothers Corporate Finance.
The thawing has been welcomed by firms which have been sitting on huge amounts of "dry powder," or available capital to spend. Tilley said a number of firms which raised capital in the strong fundraising climate of 2006 and 2007 face an ever-narrowing window in 2010 to deploy capital before their five-year investment period expires, at which point they have to go back to limited partners (the investors in private equity funds) to extend the period or cancel some of their commitments. This can have pretty serious negative consequences. If LPs feel firms have not managed their commitments well, they may not want to invest in subsequent funds, he cautioned.
This is great news for middle-market business owners! As financing continues to loosen, it will enable more and more equity groups to become active. More importantly, as mentioned, the investment window for many groups that raised tremendous amounts of capital in 2007 and 2008 is closing. Because of this, they literally will be forced to become more active as the time frame for either investing or canceling commitments approaches. Keep in mind that equity groups are sitting on over $400 billion in dry powder right now. Do you honestly believe that they will want to begin canceling those commitments? I highly doubt it.
Certainly not every middle-market business is a candidate for an equity group. However, as equity groups begin to become more active in 2010, they will start to compete with strategic players for deals. As this occurs, it will drive up valuations across the board.
The only way you can know for certain who the best set of buyers would be for your company is to seek the advice of experts in this field. An M&A advisory firm like The March Group can help to position your company to be attractive to a large buyer pool. We can then negotiate on your behalf to ensure the best terms and valuation for your company. Please contact us so that we can assist you in understanding the M&A process overall and show you how The March Group's time proven processes can help you gain your financial freedom.
http://www.reuters.com/article/idUSTRE61P4K120100226