Private equity professionals are just as hopeful about the future as they were around this time last year, according to a new survey sponsored by
“Hope springs eternal,” says Akin Gump Partner Patrick Dooley, who adds that buyout pros expect that deal financing will return next year and valuation gaps will narrow.
The survey found that 44% of survey respondents who expect valuation gaps to narrow predict it will happen in the first half of next year. Meanwhile, 61% of those surveyed say they expect financing markets to improve in the first half of 2010.
Until that happens, the study, entitled “Private Equity Under Dynamic Market Conditions,” suggests buyout firms employ strategies such as earnouts and rollovers as a way to bridge the gap between the equity they’re willing to throw down and the amount of senior debt the company can secure.
One notable part of the survey was the fact that leveraged buyouts remain the preferred method of investing for the large majority of respondents.
According to the survey: “Many commentators expected the turmoil in the credit markets to drive private equity sponsors from LBO structures to alternative structures that were not as reliant on debt financing. Instead, the principal impacts have been on deal size and valuations. The current credit markets are more accommodating to middle market and smaller transaction sizes and lower valuations support expected target returns.” —Erin Griffith