Although it has been widely reported that many private equity (PE) funds are sitting on money that they have to invest or return to investors in 2014, some analysts have predicted that PE deal flow will drop this year. BDO USA LLP are among the analysts to support this view, which was arrived at following a large piece of research work that was presented on the MiBiz.com website.
The main finding was that only 15% of surveyed fund managers across the United States said that they believed deal flow would increase in 2014. Given the amount of dry powder currently sitting in PE funds’ accounts across the industry, it had previously been widely expected that 2014 would prove to be a bumper year. Many commentators believed fundraising would drop this year, but only because there would be so much focus on investing the funds currently available as well as managing the exits of investments made around the time of the 2008 global financial crisis.
Recent weeks have seen an increase in the number of people questioning whether 2014 will prove to be a strong year, with research pieces such as this supporting their view. Ironically, such questions have been raised against a strong start to the year. It is understandable, however, that the sustainability of strong performance would be questioned, particularly as many of the fund closures this year represent funds raised mainly in 2013. The more favourable economic outlook for the planet means that there’ll be more parties from various parts of the financial industry fighting over the best deals.
One positive aspect of this outlook is that, while deal flow may reduce, the value of the deals will almost certainly increase owing to the higher level of competition. Such a trend will again refocus PE funds’ minds towards the value of deals and how their spend will be reflected in returns down the line, but also boost the marketplace as funds begin to accept again that they may need to spend a little more to secure the deals they want the most.