Deal activity in the middle market remained strong in the Q2 ‘10, continuing the solid rebound that started in Q4 ’09 and Q1 ’10. In Q2 ’10, both aggregate deal value and volume increased 26% and 2.9% from Q1 ‘10, respectively, for disclosed middle market transactions (Enterprise Value < $500 million and > $10 million). Increases in deal value and deal volume are being driven by both strategic buyers and private equity firms. Attractive valuations in the middle market, improving economic conditions and record cash balances have caused strategic buyers to emerge from the M&A sidelines. In addition, the private equity community is increasingly active in the middle market, under pressure to spend uninvested capital and to realize returns on existing portfolio companies before the tax on capital gains increases in 2011. Transaction multiples for Q2 ’10 averaged...Read more.  (This article is premium content and is available to registered members only). 

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On Friday, June 25, a House and Senate conference committee agreed to require the vast majority of private equity and hedge fund advisers to register with the SEC under the Investment Advisers Act.  Venture capital fund advisers are specifically excluded from registration.  Both houses of Congress now need to approve the legislation before it can be signed into law by the President.  Below is a summary of the conference committee proposal.  Importantly, there is a one-year transition period built into the legislation.  Accordingly, private equity and hedge fund advisers would not be required to register with the SEC until at least July 2011.  Read more.  (This article is premium content and is available to registered members only). 

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2010 Carried Interest and Compensation Survey

If the last six months has proven anything in the private equity industry, it’s that carried interest has taken on a whole new level of importance. First, at the end of 2009, The Institutional Limited Partner Association (ILPA) developed the “Private Equity Principles,” a guideline of best practices for private equity firms. With more than 100 LPs endorsing the principles, the goal is to make sure that the GPs’ interests are aligned with those of the LPs.

May 2010
By John P. McNulty

 Senior executives from some of the nation's top private equity firms say they have essentially completed aggressive cost cutting within their portfolio companies and are confident about those businesses' growth and profitability. Many plan to increase hiring during the coming year, and most expect to turn much of their attention back to deal making.  Today, private equity firms have reduced their involvement in the day-to-day operations of portfolio companies in such areas as human resources, information technology and purchasing and have returned to focusing more on value added tasks such as strategy, lender relationships, finance and accounting...Read more.  (This article is premium content and is available to registered members only). 

By John P. McNulty- May 2010

The financial downturn presented formidable challenges to private equity that continue to reverberate through the asset class. A key issue is the capital overhang -- the huge amount of money raised by private equity funds that remains uncalled. It now stands at $445 billion for US private equity.

An important question for both investors and managers is the degree which, and for how long, the overhang will depress returns. A piece -- just a piece -- of the answer is that the smaller the fund and its market focus, the less likely the overhang will impact its returns, according to the authors of a new Market Commentary from Cambridge Associates called "U.S. Private Equity: Sleeping Off the Overhang Hangover."

Which funds are most affected by the overhang?...Read more.  (This article is premium content and is available to registered members only). 

By James A. McCarthy - April 2010

In the summer of 2005 I was working on a tuck-in acquisition for an existing portfolio company.  I can’t use the name of the real company, so for purposes of this article let’s call it the Rose Company.  The Rose Company was a privately held service company located in Maryland. It was 100% owned by its founder, Chris Moore. Chris had founded the company 8 years earlier (1997) and had grown the company to about $20 million in revenue with $4 million of EBITDA. The company had low to no capital expenditures, as is typical for a service company, and was debt free.  In 2001, Chris hired a CEO and began to transition himself out of the day-to-day operations of the company.  Chris remained as chairman.In 2004 Chris made the decision to sell the business.  There were five or so logical strategic buyers for Rose.  Chris hired an investment bank to represent him.  His orders were to get a deal done with as little interruption to the business as possible.  He didn’t want an auction. He didn’t want his financials out in market. He knew who was going to buy his company and he wanted the banker to get it done.  

The banker approached the first buyer who was very interested.  A letter of intent was signed and due diligence was started.  A few weeks later, Chris terminated the deal.  Four months later, the banker approached the next likely buyer. Negotiations went nowhere and Chris told the banker to move on to the next buyer. The next buyer was our portfolio company. All acquisitions for the company ran through me...Read more.

(This article is premium content and is available to registered members only).  Editors Note:  This article was originally published in February 2008 but has been re-published this month by popular demand. 

White House Targets Captive Private Equity Firms
January 22, 2010 -  Yesterday morning at the White House, President Barack Obama presented his ideas on future financial reform which may include changes that will prevent banks from operating private equity subsidiaries.  In outlining his proposed changes, the President spoke of the improved strength of the financial system as compared to a year ago but he highlighted the fact that it is still operating under the same regulations that nearly led to its collapse.  “These are rules that allowed firms to act contrary to the interests of customers; to conceal their exposure to debt through complex financial dealings; to benefit from taxpayer-insured deposits while making speculative investments; and to take on risks so vast that they posed threats to the entire system,” said President Obama...Read more.