US Private Equity Overhang Reaches $400 Billion
According to AM&AA and PitchBook Data, Inc.
Growth of Capital Overhang Hits All Time High
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CHICAGO, June 2, 2009 - The Alliance of Merger & Acquisition Advisors (AM&AA), the leading association and credentialing body for middle market M&A professionals, and PitchBook Data, Inc. (www.pitchbook.com), a private equity-focused research firm, announced today new statistics quantifying the cumulative amount of private equity fundraising overhang in 2009 at $400 billion, an all-time high.
After record fundraising years in 2007 and 2008, the gap between funds raised and equity invested has widened to an aggregated level of $400 billion. The capital overhang climbed by over $141 billion in 2008 as funds closed on record amounts of new capital and investment activity declined roughly 60% due to the global economic slowdown.
http://www.pitchbook.com/US_Private_Equity_Capital_Overhang_Report_2Q_2009.html
"This historic high of capital yet to be deployed by private equity creates a new deal paradigm and a challenge. Dealmakers have to put down their pencils and dispense with historical spreadsheet analysis," said David Cohn, AM&AA Advisory Board Member and Managing Director, Mosaic Capital. "History now tells private equity little about the future. Investors need to scrutinize each opportunity to identify those companies that will survive this recession, realize future growth, and have the right management in place to get them there. Target companies will have to pass a more stringent stress test, which will be just as important as the multiples used. On the other side of the coin, investment bankers are going to have to be more skillful in guiding their clients towards more rational multiple goals."
"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 dealmaking to occur."
"The fact that private equity deal flow has dropped to a multiyear low is not due to a lack of capital available for investment, which remains at an all-time high," said John Gabbert, Founder of PitchBook. "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. That is the sole purpose of the AM&AA Deal Bash on July 30th. Private equity and investment banking attendees will have an efficient, well-organized platform to meet one another, and find and complete deals."
The AM&AA Summer Conference, July 28-30, will feature two full days of education from industry experts on issues related to the current financial climate. Discussions will highlight the thawing of what appears to be some frozen capital markets during the past nine months, and what can be done to access this capital today. In addition, the conference will include an enhanced and extended, day-long Transaction Exchange. Hundreds of leading intermediaries, investment bankers, attorneys, private equity professionals, CPA's, business advisory firms and corporate development professionals are expected to participate.
About AM&AA
The AM&AA is the leading association and credentialing body for middle market M&A professionals. Our leadership and people have unrivalled multidisciplinary expertise in the financial services industry. AM&AA members represent sellers and buyers of businesses ranging from $5 to $500 million in transaction value. Their services are seller representation, buyer representation, due diligence, accounting financing, business valuation, tax planning legal, strategic, other advisory and transaction services. The AM&AA offers members a solid platform for professional collaboration.
www.amaaonline.com
About PitchBook
PitchBook Data, Inc. is the only private equity-focused research firm that comprehensively covers the full private equity lifecycle. Its flagship PitchBook Platform provides clients with the highest quality and most complete analysis on over 20,000 private equity deals, 8,000 investors/corporate acquirers, 3,000 professional service providers, 1,600 limited partners and 85,000 industry professionals. www.pitchbook.com
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