New Data from Preqin, Dow Jones, PwC and IFS
We bring you the latest industrial manufacturing M and A data from PwC further down the page, but we start today with breaking news and data from the Private Equity arena.
The last couple of months have seen private equity firms stepping up their marketing efforts to source new investment opportunities.
In response to the growing number of calls and emails we have been receiving from private equity firms, we thought we would dig into the numbers to see if the latest industry data confirmed our observations.
Dry Powder = Fresh Capital
According to Preqin, a London-based research firm, the global private equity industry's dry powder (uncommitted and available cash to invest) currently exceeds $1 trillion, or $1,000 billion.
So, the next time that someone tells you there is little money available to invest in companies, you can let them know that there is over $1,008,000,000,000 fresh cash currently looking for a new home.
Where has the money come from?
The principal investors (known as limited partners) are pension funds, university endowments, foundations, hedge funds and other investors who have continued to invest in new funds.
First Half 2009 Investment Levels
A report published on Monday by International Financial Services in London, estimates that only $189 billion of private equity was invested in 2008, down by 40% from 2007 (we picked this up from today's Financial Times blog: ft.com/alphaville).
Investment in the first half of 2009 was estimated to be down 80%, representing a 12-year low.
The chart below speaks volumes.
Look at the huge dollar difference between funds raised and funds invested.
US Private Equity has largest share of cash
According to Prequin, the US accounts for $609 billion of the $1,080 billion in dry powder, with the rest of the world sharing the remaining $471 billion. Of the $1,080 billion, $507 billion is specifically for acquisition targets, $194 billion for real estate and $153 billion for venture funds.
Returns for Private Equity
Returns for Private equity as an asset class are down 27.6% year-over-year, which reflects the impact of poor performance of the broader economy, bailouts, bankruptcies, credit tightness and company collapses.
It is important to note, however, that short-term performance has not dampened investor confidence in the sector. Most Private Equity investments will ride through the storm with a longer time horizon than other investments (typically 5 to 7 years).
New fundraising levels
According to a recent Dow Jones study, during the first 6 months of 2009, 179 private equity funds raised "only" $55 billion, 64% less than the $153 billion raised by 261 funds during the first half of 2008. The additional $55 billion joins the mounting pile of fresh cash.
Impact of Tight Credit Markets
Average debt levels in buyouts fell to 42% in 2008 from 47% in 2007 (the lowest level since 1994).
Banks have been more reluctant to fund leveraged buyouts with higher debt leverage and are also reluctant to offload distressed assets unless absolutely necessary.
Although banks continue to be the largest lenders to private equity firms, $500 billion in loans are due to be refinanced in the next few years, so other participants will be able to pick up some of that debt.
Best time to invest + Wave of fresh capital
Historically, private equity has made the highest returns from buyouts made through the down cycle.
Most firms are anxiously looking for healthy acquisition opportunities to deploy their cash and there is significant competition for investment opportunities in attractive middle market companies.
ClearRidge recommends that you consider planning the sale of your company if it has performed comparatively well through this down cycle. There are myriad creative ways to structure a deal to ensure you get a fair sale price for your company today and also benefit from upside over the coming years.
Sources: Dow Jones, Preqin, International Financial Services, Financial Times blog (ft.com/alphaville)
Industrial Manufacturing M and A Activity - PwC Update
Getting down to more industry specific data, PricewaterhouseCoopers released their latest "Assembling Value" quarterly report this week on Mergers and Acquisitions in the Industrial Manufacturing industry.
Relevant highlights are below:
Decrease in number of deals as well as their value
- Overall number of US deals declined from 27 in 1H2008 to 7 in 1H2009 for deals worth $50 million or more.
- Overall value of US deals worth $50 million or more has declined from $8 billion in 1H2008 to $1 billion in 1H2009, representing a decline of 88%.
- Average deal value during 1H2009 was $129 million versus $268 million in 1H2008, representing a 52% decline.
- US-based private equity firms raised $55 billion in 173 funds in 1H2009, representing a 64% decline compared to $153 billion raised by 261 funds in 1H2008
US as a Proportion of Global Activity
- Deal Activity is still largely driven by North America, which accounted for 27% of all first half 2009 worldwide deals with a transaction value of $50 million or more.
PWC Report
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