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The 60% Plunge In Private Equity Deal Flow
If there is one sector that is really hurting despite the outperformance of all other asset classes (money being thrown at equities, bonds, and commodities without regard or prudence as Rosenberg has pointed out), it is private equity. Indeed, while credit has thawed in general, investors are still completely shutting out the 5x+ leverage transaction world: the bread and butter of the LBO business model. For a sober look at the desolation in the PE landscape, even as funds rush to raise more billions in dry equity powder which sits at banks collecting 1%, consider that YTD only $33 billion in 654 PE deals has been disclosed, a 60% drop from the 1,532 deals done through Q3 in 2008, and N/M when compared to the heady days of 2007.
From PitchBook Data:
The most recent quarter saw not only fewer deals done - 201 were closed - but also much smaller deals in size, totalling just $7 billion in disclosed deal amounts. These results continue the downward trend initiated almost 2 years ago.
Yet free Fed liquidity apparently seems to be only available only to the To Big To Fail recipients of taxpayer generosity: even as LBO firms have raised over $75 billion in new equity, they have put less than a half of that to work. As mom and pops apparently are unable to fund the financing commitment for TXU-like repeats with direct deposits from their 401(k)'s, the dormancy in the PE space will likely last until such time as Obama manages to fully reignite the housing bubble, which by modest estimates should be in about 2 weeks. There are mid-term elections to think about.
h/t Kevin
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Private equity is the blood-suckers of Corporate America. Lever up a healthy company, strip as much money as possible out and then sell the crippled company to some suckers. What a racket.
Just because they're better at playing the game than you doesn't mean you have to get your panties in a bunch about it, grow up.
Most corporations are absolutely bloated, inefficient, turd-buckets just waiting, nay, begging to be chewn up. If shareholders (ahem, institutional investors) won't hold management accountable, then the PE guys are doing a service.
Gee, I wonder if you work in the financial services industry. I would be curious as to how many "bloated, inefficient, turd-buckets" you have actually worked for or with? PE firms loading a company up with debt in order to pay themselves a "dividend" isn't making the company any more efficient (e.g., Mervyn's, Linen's N Things, etc.). Can you tell me how many jobs the private equity firms have added in the US in the past five years? How about innovations in technology? Financial engineering typically benefits the PE firms and not the companies or industries they invest in.
The "private equity" scam will hopefully die forever. Those parasites had the best fraud game going of all time, and legal too! They can't lose with that scam, pure genius!
Yes, major redemtions are still being conducted. For those who have further interest in reading about the general "overall performance" of Private Equity(or often lack thereof), read this article profiling Leon Black from Apollo Partners. We posted it a while back, though, here is a brief summary:
on Thu, 09/24/2009 - 12:20
Read the article profiling Leon Black (Apollo Partners) in the February 11th, 2009 issue of Portfolio Magazine (not defunct). Essentially, private equity makes money for one group -- their founders and senior principals. Everyone else invested like pensions, insurance, endowments, etc. -- pays exorbinant fees to be part of "their elite game and group." Is private equity really smarter? Doubt it. This from a study referenced in the article: European academics, Ludovic Phalippou and Oliver Gottschlag, demonstrated in a paper that the poor performance of private equity firms could be understated. When private equity firms report the value of their funds, they include estimated values of deals before the investments are actually realized through a sale or share offering. Surprise, surprise: Those estimates tend to be biased upward. When the data is cleaned up, Phalippou and Gottschlag found, it becomes clear that the private equity industry tended to underperform the S&P 500 by three percentage points a year after fees. Also from the artcle: After fees, private equity firms as a whole don’t beat the market. University of Chicago scholar Steven Kaplan studied the industry’s returns and in a 2005 paper reported that over a period of about three decades, the average private equity firm’s annual return was no better than that of Standard & Poor’s 500-stock index.
Deal flow only down 60%? Considering the fact that any viable deal takes 100 banks to finance I would have thought the number would be lower. Capital is down more like 90%. The only reason why this sub-set isn't down further is that institutions can't get at their money.
Excellent points! A GAO study conducted between 2005 - 2007 showed an amount of $633.8 billion in deals done by banks with PE firms. Of course, with all those banks carrying so much toxic assets (formerly known as liabilities), one wonders where all those TARP funds are going.....
Anything that CANNOT BE SOLD INSTANTLY WITH A MOUSE CLICK is dead.
That includes:
- Private equity
- Alternative investments
- Fund of funds
- Real estate
Random.. chart looks like the Cisco logo... <shrug>
... So the golden gate bridge?
Any industry that makes their money loading balance sheets of good companies with PIK notes....deserves a slow and painful death.
Those who play with PIK notes, should die with PIK notes.
Why should they put money at work? They're sitting on a pile of dough, collecting 2% and the LPs are unable to meet capital calls. PE bubble has imploded and new PE will come back with a lot less leverage after the economy recovers. Only the best GPs will survive this crisis.
I've worked in private equity/venture capital for some time now. I saw the good days and the bad days. I am always baffled by the animosity some laymen have towards this business. Not every fund leverages good businesses and sucks their blood. In fact, in my experience, few deals that I've worked on have taken that path. As to the general model of investing in a company, taking it public, and exiting the investment, I do not understand what's so anti-social, bloodsucking, or destructive about this. As to the PIK comment above, I cannot fathom what the author is saying. Good day to you all. ZH is an informative venue but I just wish that only people who know what they are talking about speak in the forum. After all, I believe this was a website written by professionals for professionals, if I am not mistaken.
Unfortunately, my good man/woman, there's no practical way to keep the yahoo! finance types out, well, there may be, but, oh, whatever...
Establish a fund of funds with heavily borrowed funds, issue credit derivatives of varying types against that fund, and super-leverage against both the fund and those derivatives, then purchase a company and borrow against that company's assets, thus raping and pillaging said company. Then lay off employees and offshore jobs from pillaged company. The EXIT company, leaving it to its own demise due to previous mentioned actions.
Sounds like an excellent plan for the disassembling of an economy?
god...is there no end to the fraud in this country?