Granahan: PE's New Big Guns?
July 13, 2009
It's become increasingly popular for those covering the business of Wall Street to report on the opportunities now available to middle-market firms.
While the massive dislocation has left some larger shops for dead, or severely impaired, the little guys are pouncing. Whether it's through more mandates, luring big-time personnel or simply benefiting from the perception that the bulge brackets were somehow all shady, it's the small shops' time to shine.
There is an another angle to this that hasn't yet been explored much but does warrant some attention, and that's in the private-equity arena.
PitchBook, a data provider that tracks the goings-on in the private equity world, unveiled its first-half stats on the asset class last week. There were the usual depressing numbers to consider; for instance, it was the slowest six months for private equity since 2002, with only 408 completed deals, while fundraising, which drives investment activity, was anemic in the second quarter, even matched up against the weak first quarter.
But for the middle-market crowd, there was more evidence that it could be their time to make some noise in a field in which they're not always considered key players.
The data did show that demand for "megafunds" remains relatively strong -- the largest funds closed in the first half were from Apollo and Carlyle -- but the list of the top investment banks and advisers in private equity was populated by decidedly smaller names. Houlihan Lokey and Harris Williams set the pace, and of the top 15 only two -- Goldman at No. 3 and Lazard at No. 6 -- can be described as bulge bracket. Instead, it was the likes of Piper Jaffray, Jefferies, Evercore and Morgan Joseph leading the way in the first half.
Even on the lending side there was a notable absence of the Credit Suisses and JPMorgans. While GE Capital and BofA were the top two lenders, there were also names along the lines of TriState Capital Bank, Fifth Third and LBC Credit Partners.
Of course, there is at least one explanation for this: small and middle-market firms are getting the attention of the PE shops because they can be had without piling on gobs of debt, and there are potentially good bargains. Indeed, of all the first-half private equity deals, 70% were classified as middle-market deals, and smaller companies tend to do business with smaller banks.
What will be fun to watch when dealmaking gets back to some form of normalcy is whether the middle-market banks can hold onto their new-found strength in private equity.
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