As private equity buyers attempt to rectify balance damaged by overleveraged purchases of the past two years by veering towards more successful deal opportunities, a recent study suggests that the circumspect investment route may carry its own set of perils.

The study, completed by GF Data Resources, LLC, surveyed 130 private equity firms’ transactions in the range of $10 to $250 million. Even as industry observers notice a flight to quality among PE firms, the study shows evidence that weaker companies have begun to re-enter the market.

In speaking with Mergers & Acquisitions, Andrew T. Greenberg, chief executive officer and chairman of the West Conshohocken, Pennsylvania-based research firm, said well-protected market niches continue to get bid up. Despite this well-documented trend, when he noticed aggregate valuations had fallen to 5.1x in Q3 09, he said the data “hit us over the head.”

Greenberg, also a managing director at the investment banker Fairmount Partners, said the decline in valuation was the result of weaker companies that have begun to entering the market. In discussing the results, he noted that the reported transactions included very few distressed sales, but were distinguished from more solid businesses over the threshold of EBITDA margins of greater than 10 percent and revenue growth over 10 percent.

As a result of the trend, Greenberg warned buyers to prepare to pay higher valuations for highly valuable opportunities, and continue to be opportunistic in looking at other opportunities. “Less exceptional businesses are beginning to adjust their expectations and are reentering the market,” he said.