"Even during the worst of the credit crisis, many private equity firms maintained ample capital for deployment, but most found it extremely difficult to complete deals. At the same time, mounting liquidity concerns compelled many business owners to pursue a potential sale. In many instances, discrepancies between the owner's perceived value and the price that potential acquirers would pay, kept private equity capital on the sidelines. With lending again less restricted, this gap has started to narrow leading to renewed activity. This has compelled some observers to diligently monitor the private equity industry for news of the next megadeal as a potential harbinger of better days ahead. However, activity among small and mid-sized private equity funds is perhaps a better measure of the sectors improving health and could indicate the start of a sustained recovery," said Tom Angell, head of the Rothstein Kass private equity practice and Principal-in-Charge of the Rothstein Kass Commercial Services Group. "To compete effectively with multi-billion dollar funds while syndicating risk, smaller firms will be more likely to pursue club deals for larger acquisitions."
"Private Equity in 2010" was co-authored by Russ Alan Prince, a leading authority and counselor on private wealth, and Hannah Shaw Grove, a widely recognized expert on the behaviors and finances of wealthy individuals. Insight into the statistical results was provided by the principals and professionals of the Rothstein Kass private equity practice. Among notable findings:
- Nearly 77 percent of participants anticipated increased regulation of private equity firms
- Over 66 percent of survey respondents are actively raising new capital this year
- More than 70 percent of participants predicted it would be more difficult to raise new capital this year than in 2009
- 46 percent of private equity managers expected more fund launches than in 2009, while fewer than 39 percent expected more closures
- 65 percent of survey respondents anticipated downward pressure on fees
- Just over half of private equity managers predicted there would be fewer good investment opportunities in 2010
- Over 66 percent anticipated greater involvement with portfolio companies
- More than 77 percent of survey participants expect that it will take longer to sell portfolio companies
- Nearly 39 percent of survey respondents expected that private equity firms would more frequently form consortiums to execute large transactions
- Nearly 51 percent of respondents are expecting increased IPO activity in relation to portfolio companies in 2010
- Slightly more than 30 percent of participants expected IPO proceeds to be used primarily to finance future transactions. Nearly 56 percent believed IPO proceeds would be used primarily to strengthen other portfolio companies.
"Most private equity managers recognize that greater involvement with portfolio companies will continue to be essential to unlocking long-term enterprise value. Fortunately, many private equity firms are well-positioned for these conditions. In addition to the vast array of financial approaches and tools at their disposal, many private equity firms possess extensive sector knowledge that enables them to make astute decisions even in a rapidly shifting competitive landscape," said Mr. Angell. "With exit strategies uncertain, those private equity firms that are able to sell portfolio companies will be more likely to use the proceeds to bolster other portfolio companies than to pursue other transactions in the near-term."
