Strategic investors have done 82 percent of the deals announced in the United States so far in 2011, compared to 16 percent for buyout shops, according to the accounting firm PricewaterhouseCoopers LLP.
Tim Hartnett, PwC’s U.S. private equity leader, said this should not be surprising. “All things being equal, a strategic has an advantage, because the strategic can bring synergies” beyond what a financial sponsor can deliver, Hartnett told Buyouts after the publication of the firm’s midyear M&A review.
What is surprising is the velocity at which the deal market has bounced back from the financial crisis of 2008 and 2009, in contrast to an extended slump following the 2001 recession, said Hartnett, who has been a partner at PwC for 14 years. The reason: In a nutshell, money is everywhere.
Buyout firms are sitting on record amounts of dry powder, strategics are flush with cash, the financing market is offering credit at attractive spreads—”It’s a robust market. It’s a seller’s market,” Hartnett said.
Which makes it a good market for exits. PwC reported that exits have increased significantly in the five months that ended May 31, with 22 deals with disclosed value of $23.9 billion compared to 13 deals with disclosed value of $3 billion in the first five months of 2010.
Mid-market activity has been strong, accounting for 94 percent of deal volume and 27 percent of deal value, with 1,066 middle market deals worth $126 billion in the first five months of 2011. (PwC defines the mid-market as deals of less than $1 billion.) Deal value involving a financial investor totaled $70 billion, or 16 percent of total deal value and a 50 percent increase over the first five months of 2010.
But mega-deals have been relatively slow, and mostly concentrated among strategics, PwC noted, citing the $40 billion AT&T-T-Mobile and $26 billion Duke Energy-Progress Energy deals. Mega-deals are harder to finance. They require more expertise and a greater investment of time, to say nothing of the expense of performing the due diligence, Hartnett said. “You are pursuing a big deal where you may not get it. Private equity firms are just not taking the risk.”