Need To Meet: Tom Bonney

As the deal market heats up, buyout firms are likely to find they need to beef up their staffs to handle the increased activity, said Thomas Bonney, the founder and a managing director at Philadelphia-based private equity consulting and recruiting firm CMF Associates LLC.

A typical firm with 10 investing pros may need to bring on two or three analysts to handle the increased dealflow, said Bonney, who hit the road in April to renew contacts with the buyouts community, criss-crossing the country from Miami to Connecticut, New York to Chicago, Denver to San Francisco and Los Angeles, meeting with 50 firms over the course of 60 days.

It was the first time since early 2008, when the economy began its slump, that he had reached out to talk with buyout pros about market conditions and the state of the industry, he said. “In my view we’re at the beginning of a sustained period of deal activity.”

Not only do buyout firms have an overhang of as much as $400 billion of dry powder, but strategic buyers have trillions of dollars of cash on their balance sheets. As a result, the competition for deals is driving purchase price multiples to levels not seen since 2007, influencing the strategy of the LBO shops, he said.

“Many of them are more active in monetizing their exits than in searching out new deals,” Bonney said. Still, he added, when they are doing deals the work load is high. “Diligence is pretty intense. Deals are taking longer to close so they’re more expensive to close.”

Not everyone shares the bullish outlook on hiring. At the Buyouts Chicago conference in June, Phil Canfield, a principal at the Chicago shop GTCR, made the point that lots of firms are raising smaller funds now than they did the last time around, in the 2005-2007 period. Talking about firm finances, he said: “PE hiring broadly is going to be a challenge. When you go from a $15 billion fund to an $8 billion fund, you’ve got to worry about the economics.” (GTCR itself, however, plans to grow its staff of 85 people by 7 to 10 percent per year at all levels, according to Canfield.)

Bonney countered that even though mega funds are raising significantly lower levels of capital, many mid-market shops are still raising successively larger funds. “Sourcing and closing deals today is much more complex and time-consuming than it was pre-2008. Furthermore, funds need to deliver value-creating, operations-oriented enhancements to deliver meaningful returns to the limiteds,” he said. “Successful PE funds will be looking to add associates to address these structural issues.”

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