NEW YORK–(BUSINESS WIRE)–Private equity (PE) is poised for a comeback in 2011, with increased optimism for a steady revival of deal, fundraising and exit activity–but a fragile economy and credit market hangover could derail PE’s recovery; this, according to the ‘Global Private Equity 2011 Report,’ released today by Bain & Company, the world’s leading advisor to the PE industry.
Signs point to a healthy surge in demand for PE deals in 2011, according to the report, including:
- GPs still sit on nearly a trillion dollar stockpile of uninvested capital, i.e. ‘dry powder.’ This dry powder will help fuel a predicted surge in deal volume in 2011, given the inclination by many GPs to ‘put money to work.’ This positive trend is somewhat tempered by the fact that approximately one-quarter of the $434 billion of the dry powder targeted for buyouts is ‘pressured capital’–committed capital in the hands of GPs with powerful incentives to return profits to limited partners (LPs) and extend the life of their firms–which may cause some pressured firms to overreach in their deal-making efforts and potentially drive up deal prices as a result.
- GPs will benefit from more stable debt markets. Major improvements in the dynamics of the debt markets increased the amount of leverage–a ratio of five times EBITDA by the end of 2010–that PE investors were able to bring to the financing of LBOs and the softer covenants attached to it in 2010 should continue into 2011, provided investor demand remains buoyant.
“PE firms are hungry to do deals,” said Hugh MacArthur, global head of Bain’s Private Equity Practice. “But that hunger can quickly translate into heartburn for firms that ignore the new realities of PE value creation.”
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