In today’s (August 19, 2009) Wall Street Journal, an article titled “Private Equity Holds Its Cash . . . And Waits”, reported that the private-equity industry manages $2.5 trillion in funds, a 15% increase from 2007, and of those funds about $1 trillion are available for investment (i.e. they are sitting on cash rather than invested in portfolio companies).
The article says that last year private-equity firms attracted new funds at more than twice the rate they made investments, and “The accumulation of cash could signal that private-equity firms expect the pace of deals to pick up soon or that they want to avoid a scenario in which they don’t have the funds to exploit an economic recovery while rivals ride bargain prices to stellar returns.”
I believe that with the majority of economists stating that the economy has hit bottom and is now slowly starting to recover that we will start to see a significant increase in the number of acquisitions made by private equity groups.
I represent business sellers whose companies have between $500k and $20 million in annual revenue. This size range is too small to be of interest to the majority of private equity groups. However, as the private equity industry has grown over the past several years, increasing competition for the limited number of large company deals has caused more private equity firms to start looking at smaller deals. In my buyer database I have several private equity firms that have expressed interest in acquisitions of companies with less than $20 million in revenue.
Over the past 12-18 months, there have been lots of buyers sitting on the fence – from private equity groups to acquisition-minded companies to individual business buyers. The economic and political change and uncertainty has left many of them preferring to do nothing. As things begin to stabilize and mild recovery is perceived, I believe serious buying activity will substantially increase. For business owners who would like to sell, but who have been also sitting on the fence, it may be time to start preparing to market your business.
