Morgan Stanley banker sees healthy deal pipeline

Sanders, managing director and global head of the Financial Sponsors Group, said he remains optimistic after the bank’s private equity deal making unit posted a strong 2014.

He sees a healthy pipeline of carve-outs of non-core or underperforming units of strategic companies, secondary buyouts and minority stake sales

“Despite having to contend with high equity valuations and greater competition from strategic buyers, I see a nice wave of deals for 2015 due in part to aging portfolios and the record amount of dry powder still available to private equity firms,” he said.

Some sponsors and LPs may be growing more interested in acquiring companies for holding periods outside of the typical three-to-five-year time period.

“We are starting to see certain funds looking to establish investment vehicles with longer investment horizons and lower targeted returns, particularly as fierce competition continues to drive alternative sources of deal flow,” Sanders said.

On the economic front, the U.S. remains in growth mode, but GDP expansion is still low enough for the U.S. Federal Reserve to maintain its accommodative stance on interest rates.

“Our house view remains that the Federal Reserve will not move on interest rates as quickly as the market is currently expecting,” he said.

On the geopolitical front, Sanders said volatility in energy prices remains a focus of dealmakers.

Lower crude prices, “may provide potential investment opportunities from dislocations in the market, placing downward pressure on inflation expectations and creating additional stress beyond sanctions in Russia,” he said.

While some take-private deals have taken place, the pace of public to private activity, particularly larger transactions, will likely remain subdued, he said.