Holman: PE's Forecast
June 11, 2009
Around this time of year most Americans are gathering at barbecues, beaches and parks to soak up the summer. But, after another round of thunderstorms rolled across the nation this past week the notion of whether summer will actually begin hung around as a question mark in this reporter’s mind much like the clouds shrouding New York’s skyline. It’s not exactly unlike the middle market transaction business where a lack of quality companies for sale, tough credit markets and portfolio company restructurings have combined to create the deal community’s version of an atmospheric low pressure system.
In May it looked, though, as if one corner of the private investment industry was looking up. A pair of private equity consortiums took control of BankUnited Financial Corp. and First Southern Bancorp Inc., respectively. The acquisitions suggest that regulatory hurdles around ownership restrictions on bank investors might be easing, raising the prospect for other troubled banks to be salvaged through acquisitions by financial buyers all too eager to put their funds to work.
By mid-June, however, bad news surfaced. The Federal Deposit Insurance Corp. nixed another private equity club’s bid to buy the Atlanta-based commercial bank Silverton Bank, and closed it instead. And a new survey from Rothstein Kass of more than 200 middle market private equity professionals predicted that challenging capital market conditions would persist into next year, clouding the transaction-making prospects for LBO firms and hampering fundraising efforts.
However, all may not be as bad as the dark clouds on the horizon suggest. A spate of private equity deals were executed over the past week as the IPO window creaked open, and M&A boutiques are as busy as ever. In addition, some $400 billion of capital is sitting on the sidelines waiting to be invested once the credit markets bounce back.
Now if the clouds would just go away for more than a day, perhaps the summer will arrive in time to give dealmakers a break from the M&A industry’s perfect storm.
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