2011 The Year Of Buyout Shop Takeovers?

Could 2011 be the year big buyout shops start buying small firms?

Paul Queally, co-president of Welsh Carson Anderson & Stowe, predicted at the Dow Jones Private Equity Analyst Outlook conference that this would be the year we would see at least one such deal, and his rationale is intriguing.

For smaller firms, the cost of compliance with Dodd-Frank—specifically the requirement to register with the SEC, which would likely require a chief compliance officer and much more detailed record-keeping—could prove crippling, said Queally. For large firms, there could be an opportunity to buy a shop with expertise in a sector in which it’s interested but doesn’t have prior experience. Queally told Buyouts that while he expects this to happen, he hasn’t heard of any actual deal in the works.

WCAS is in the process of registering, and Queally estimated it could cost the firm $1 million annually to comply. Moreover, he said the process is taking up most of his time lately, as opposed to evaluating new deals.

As Buyouts recently reported, several mid-market shops, including Olympus Partners, Atlas Holdings LLC and Brockway Moran & Partners, are waging a campaign urging Congress not to impose the registration requirement. They argue that mid-market firms don’t pose a systemic risk to the economy, and that the requirement will distract them from investing in companies and promoting job preservation and growth.

Andy Bursky, chairman of Atlas Holdings, said registration could cost his firm $300,000 to $500,000 annually, while Rob Morris, managing partner at Olympus, estimated it could cost his firm $500,000 to $600,000 annually.