You Should Have Been There for a Glimpse into PE’s Future for 2009-2010
by “Should Have Been There” guest blogger, Larry Blumsack, President, Zoka Institute
Keep your powder dry, strengthen and stabilize your portfolio companies, because the future of Private Equity remains as murky as predicting where the U.S. economy is heading in the future. That was the consensus outlook at the “Dealmakers 2009 Outlook Conference” last week at the Boston Park Plaza Hotel.
The title of this year’s conference was “Deal or No Deal in this Challenging Environment” and keynote speaker Chris O’Brien of Investcorp International made it clear that one’s skills in operational improvements for portfolio companies is the mantra that will determine what PE firms will still be around in when the dust clears. He states that if you have cash keep it to defend your portfolio. His estimate was the golden era for PE is 12-24 months away. In general he believes that the mega market is dead and the middle market is ok except for lack of deal flow.
The words from the panelist driven by moderator Dan Primack Editor-at-Large at Thomson Financial struck many of the same notes as Chris O’Brien.
Brooke Ablon of Fidelity Equity Partners says the market has shifted to 75-150M companies. However, Charles Brizius of THL Partners believes that their average investment will stay around $500M. Too cloudy to predict in this distressed market was Audax’s Co-CEO Geoff Rehnert’s conclusion while stressing his company’s stability comes from buying senior debt. Advent International’s Managing Partner Steve Tadler believes that changing to other markets is a better solution for PE firms than going down-market.
All agreed that there will be a major shakeout reducing the number of PE firms by 50% or more. The PE landscape will change dramatically because on average most firms are only doing 2 deals a year. With limited deal flow, this will force a lot of consolidation with firms buying each other. At the same time treating Limited Partners well will go a long way for a firm’s survival.
So, “Deal or No Deal” for 2009 and beyond will depend on how well PE firms operationally nourish their portfolio companies for the next year or two.
