Trapped

In my skin. Sometimes it feels this way.

So despite the gloom and doom and blah blah, private equity has cashed in a record amount of dough : the value of companies sold by pe firms worldwide reached $85 B since April (data from Preqin) - this exceeds the record deal volume of Q4 2010 when the industry sold out of 325 companies worth $81.3 B. Give or take. The exits driven by European deals, mostly, and the re-emergence of strategic buyouts which bought most of the bigger assets that were up for sale. Exhibit 1. Takeda Phama of Japan buys Nycomed from Noric Capital for $14 B. Exhibit 2. Microsoft buys Skype from Silver Lake for $8.5 B. So what gives ?

Well, firstly, a combo of factors like a greater availability of debt financing and cash-rich strategic buyers. But consider this : most private equity firms avoided fundraising after the collapse of Lehman Bros in '08 since few traditional fund owners had appetite or cash for new commitments. Now managers see their mgmt fees decline after the typical 5-year investment period when they are paid full freight. These guys need to show investors that they can make money if they wish a shot at another partnership. + more fees. And so the exits.

The next five years will see a clearing out of middling managers unable to raise more money. There is already an industry overhang of $500 B of capital ion Europe alone which of course hurts returns. Only the strongest franchises and freaks will survive.