Private equity deal flow in 2011 has risen by roughly 41 percent from a year ago, but the mega deals that once made headlines are a distant memory.
Deal volume for the first half of 2011 was $113 billion, up from $80 in the same time period last year, reports Reuters. That’s a 41 percent increase in deal volume, but it consists mostly of lower-profile deals in the low- to mid-single digit billion dollar range.
What’s more, private equity firms have encountered tougher competition from cash-rich strategic buyers, companies that are operating in the same sector as the prospective target. Many corporate buyers hoarded cash through the financial crisis, and are now poised to return to the market.
“Strategics are generally beating private equity firms in auctions unless there is no logical trade buyer,” said Larry Slaughter, head of EMEA corporate clients at JPMorgan Chase & Co (JPM.N) in London.
Banks appear to be ready to lend sizeable amounts of money for high quality private equity deals. But the large leveraged buyouts of the past have fallen out of favor among limited partners, according to the Reuters article.
Noteworthy and sizeable recent deals include the $2.38 billion buyout of Pfizer Inc’s (PFE.N) Capsugel unit and the 2.1 billion euro ($3 billion) buyout of French engineering group Spie, by KKR & Co; and the $1.6 billion deal to buy the roadside assistance business RAC struck by Carlyle Group this past week.
Some PE insiders still believe that mega-deals will return. A survey taken at the recent Super Return PE conference in Boston found that 26 percent of people expected larger deals to prevail.
“If the debt markets remain strong, I think we may see some $10 billion-plus LBOs again,” said Ehren Stenzler, co-head of U.S. M&A at UBS.
What’s your opinion? Do you think we’ll see a return to mega-sized buyouts anytime in 2011? Add your comments below.
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