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Market Overview

• The acquisition of privately held companies by private equity groups (PEGs) totaled $28 billion in Q2 with 373 completed deals, a slight drop from the 438 deals totaling $32 billion in Q1, according to data tracked by PitchBook.
• With $69 billion in total sales for the first half of 2011, the sale of privately held companies by PEGs set a record for the best six-month period.
• In terms of transactions, the two most popular regions continue to be the Midwest and the Southeast, at 20 percent and 17 percent of total transactions, respectively.
• Increasing deal activity is anticipated for the second half of 2011 as private equity firms invest their $466 billion of dry powder.

Total Private Equity Deal Flow

By Andy Stockett

Your company has “hit the radar screen” of a larger competitor, a company seeking an avenue into your industry, or a Private Equity Group (PEG) looking for a platform acquisition that allows it to put to work money raised from investors.  Or maybe you have received a letter from a firm indicating that it has buyers for your company.  What do you do?

If you have put as much effort into planning your exit from your business as you have in planning your personal estate, then you are prepared for these inquiries and are in a position to respond to, and even take advantage of, the situation.  Of course an exit plan has to be fluid—specific factors will determine strategy and tactics—but with the large amount of cash on the balance sheet of corporate America and approximately $490 BILLION waiting to be invested by PEGs, business owners would be well advised to at least consider what a transaction would look like.  And this means determining in advance what it would take to ensure a favorable outcome for owners, management, and other stakeholders.

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Market Overview

• Lower middle market private equity deal activity tracked by GF Data Resources decreased 52% from Q4 2010 to Q1 2011
• Despite fewer lower middle market private equity deals, valuations of completed deals remained in line with Q4 2010 valuations
• Levels of private equity and strategic buyer “dry powder” remain high, and M&A continues to be a priority for both in 2011
• While well below the Q4 2010 spike, total US M&A activity in Q1 2011 is up 15% over the same quarter last year

Closed US M&A Volume  (Source – CapitalIQ)

• Lower middle market private equity deal activity tracked by GF Data Resources increased 91% from 2009 to 2010
• Some Q4 activity likely driven by fear of tax hikes, though credit availability and valuation data were nevertheless strong in Q4 2010
• Levels of private equity and strategic buyer “dry powder” remain high, and M&A continues to be a priority for strategic buyers in 2011
• Commodity price indices are up 30+% year-over-year, creating hesitation among some sellers/buyers subject to commodity price risk

Commodity Price Indices (last twelve months) Source – Bloomberg