Paul Aversano, a managing director in private equity services at Alvarez & Marsal, had never seen a January quite so busy as this one.
“I’ve been at A&M for 11 years,” Aversano said. “I was one of the co-founders of this practice at this firm. I’ve grown it out as a global business. Historically, January has been our slowest month, by far. This January, for a variety of reasons, is by far a record month for M&A activity for us. We are extremely busy, which is a great problem to have.”
A confluence of global developments is driving a feverish deal pace. For one, buyout firms face a record capital overhang: “These are private equity funds that are in the business of buying and selling,” he says. “There is tremendous pressure on them not only to transact but also to realize investments in their portfolio.”
And corporate America, which has cut costs tremendously since the financial crisis, is laboring under conditions of anemic GDP increases. “U.S. companies have been struggling to grow organically,” Aversano says. “How do they deliver shareholder value? They’ve been stockpiling cash.” The answer is either stock buybacks or M&A activity.
Buyers from China “seem to have limitless resources,” while “a whole new set of buyers in family offices and sovereign-wealth funds” would rather invest directly than pay fees to PE managers. “Adding fuel to all this fire is historically low interest rates, so when you lever up, it’s cheaper,” he says.
Then, of course, there’s the President Donald Trump factor, with the new administration presiding over stock-market records.
Aversano, who is global practice leader of the firm’s transaction advisory group, is cautious:
“On the one hand, a Republican administration is viewed as being better for business. The counter to that with Trump is his unpredictability. … But it seems that people are looking through that; that’s why you have Dow 20,000.” If Trump succeeds “you could see Dow 30,000”; if not, a trade war could erupt. “So you have this euphoria with the Trump administration, but in my opinion, some of that has yet to be proven,” he says.
“It’s very interesting times,” Aversano said. “When you have this much volatility, depending on which side of the trade you’re on, you can be very successful.”
“The world of private equity investing has really changed,” he added. “Buy low, sell high” has been replaced with “buy high, hopefully sell higher.” Investors could previously make their money through financial engineering. “Now you actually have to do something to the asset, versus holding it and milking it for fees,” he says.
Alvarez & Marsal has more than 1,000 operational professionals on staff, “real operators, people who have been CEOs or CFOs who have come into our business” to help clients create value through improving performance. “We like to collect executives; we collect them and we deploy them,” he says.
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Correction: A previous version of this story incorrectly said Aversano has 11 years of M&A experience. He has more than 20 years of M&A experience and has worked at A&M for 11 years. The report has been updated.