The latest installment of a report polling the top brass of the private equity world indicates that firms are sitting on piles of cash and waiting for an upswing in the economy.
For instance, Bain & Co., the private equity shop founded by Republican presidential hopeful Mitt Romney, reports that its so-called dry powder amounts to a whopping $850 billion, with more than $430 billion sitting in its buyouts fund alone.
The consulting firm Eisner Amper’s semi-annual “Pulse of Private Equity” report is a snapshot of the industry in the first quarter of 2011, a comparison with the state of affairs one year earlier, as well as a collection of executive predictions for the first half of 2011.
“The amount of dry powder in the market is unprecedented,” the co-chairman of tax advisory services for Eisner Amper, Christopher Loiacono, said. “Smart transactions have never been more important in the face of the temptation of un-invested capital.”
The report also states that 67 percent of private equity fund executives saw an increase in available debt financing during the first quarter of the year. Some 83 percent of those polled say they anticipated even more available debt financing during the rest of 2011. The most popular industries targeted by private equity firms remain business services (with 82 percent of respondents saying they are dabbling in that sector), healthcare (81 percent) and Information Technology (77 percent).
Eisner Amper’s data consist of transaction and deal flow, debt financing, fund activities, the level of portfolio company interaction, and the concerns of limited partners as expressed to fund executives. Some 60 percent of those polled say they expected more sales transactions with other private equity firms in the first half of 2011 versus the first quarter of 2010. Public companies and institutional investors represent only 14 percent and 12 percent of respective anticipated transactions, according to the report.
A reality of the current financial environment is that private equity firms are holding onto portfolio companies longer. The report states that fund managers say they are spending more time scrutinizing ways to make their portfolio companies more profitable. “Private equity executives know that managing operating companies requires some additional skills that their teams may or may not have,” the director for financial services at Eisner Amper, Alan Wink, said. “Adding value to their portfolio businesses is paramount and we see firms addressing this need for enhanced skills.”
