PE Suffers From Lack of Deal Flow

Private Equity Suffers From Lack of Deal Flow

by Terry Stidham, President of Target Search Group

LBOs in the US declined in Q2  to the lowest quarterly value of fresh deals in more than three years after an aggressive start to the year, according to data by Mergermarket. This keeps the question alive of where we are in the market’s recovery since the start of the financial crisis.

Leveraged buyouts totaled $41.9bn in the quarter, the lowest since Q1 of 2010, when they reached $33.3bn. The drop is more dramatic in number of deals, which fell to 293, the lowest total since Q1 of 2003. In the US the volumes decreased 67 per cent.

While PE groups have had inadequate deal flow, they have exploited renewed appetite from trade buyers to sell investments.
 

Private equity-backed exits rebounded 78 per cent in Q2 to $61.6b, compared with the first quarter. There were 310 in total. However, exits were down 39 per cent from the second quarter of last year.

Secondary buyout exits more than tripled to $25b in Q2 from a three-and-a-half year low in Q1.

Given the growing backlog of private equity exits, bankers are hopeful that the rest of the year will remain active. However, recent market turmoil after Ben Bernanke signaled the end of his stimulus program adds an air of uncertainty.

“Risk is clearly being re-priced and we’re in adjustment phase,” said Matthew Grinnell, managing director in charge of financial sponsors coverage at Barclays. He feels that this might make it harder for private equity bidders to meet sellers’ price expectations.

Rising equity markets and cash-rich corporations are making it difficult to buy and much easier to sell, Leon Black, Apollo's CEO said. “We are more of a net seller today,” he said. “It’s almost biblical: there’s a time to reap and there’s a time to sow. We are harvesting now.”

So far this year, Apollo has reached a deal to sell its majority-owned Metals USA Holdings for $770.7 million to India’s Reliance Steel, as well as stakes it held in Charter Communications and SourceHOV.

TPG‘s co-founder David Bonderman only half-agrees with Black.  He says, “It’s a good time to be a seller but it’s not a terrible time to be a buyer,” because of the cheap financing.

If you need help sourcing targeted opportunities contact the deal flow specialists at Target Search Group today to discuss your needs.

About: Terry Stidham, President and Founder of Target Search Group (TSG). TSG is a business development firm providing focused deal flow and investment opportunities in the lower to middle markets exclusively on the buy-side for a select number of private equity and corporate clients. TSG sources and originates investment opportunities that fit their client's strategy, size and focus on a generalist, opportunistic, and a specific search basis. 

Terry is a Business Development Leader with extensive knowledge of the M&A process, combined with an in-depth understanding of the constantly changing global capital markets environment. He has served as the head of entrepreneurial organizations as well as Fortune 500 companies. He specializes with mid-market companies in a diverse array of industry sectors from service and manufacturing to technical and professional firms.

Mr. Stidham speaks the language of both the seller and the buyer having vast experience on both sides of the transaction. He has been directly involved in the execution and successful closing of hundreds of investment banking and corporate finance transactions. Mr. Stidham has instructed thousands of business owners on how to prepare for a successful exit. He improves operational efficiencies leading to significant increased value.