Early posting this morning, as I have a 10:10am spot on CNBC (they don’t quite believe in my laundry room setup, which means I actually need to leave the house).
Our scheduled topic: “Is private equity back?” The answer, of course, rests largely on how you define “back.” Or, for that matter, how you define “away.” So here are four different definitions, with corresponding answers. Really hoping I settle on one within the next hour or so, because multiple choice makes for bad television (save for game-shows).
Back [bak], 1: The public is beginning to take positive notice of private equity again, due to a building trickle of IPOs and Blackstone’s rising stock price (a bogus, but pervasive, barometer). Narcissistic evidence for this can be seen in the Dan Primack CNBC Appearance Index, which spiked in 2007 and has been largely inactive until August 10, 2009. Many experts note that the DPCNBCA is predictive of PE market visibility, but utterly irrelevant in terms of PE market performance or health.
Back [bak], 2: Private equity deal volume has significantly increased, particularly as a percentage of the overall M&A market. This is one of those things that is difficult to perceive, but which we’re told is real. Like string theory or Glenn Beck’s sanity. Thomson Reuters data for July shows PE deal-making rose to $13 billion, compared to just $7.39 billion the prior month, for its busiest showing since last August. Moreover, the July increase came amid an overall decrease in M&A activity, thus making it all the more impressive and improbable. Worth noting, however, that a majority of the activity came outside North America, where credit is often still easier to come by.
Back [bak], 3: Private equity fundraising is on an upswing, thus proving long-term PE market support. In the words of Will Smith (in each of his films since 6 Degrees of Separation): “Awwww… hell no.” Private equity fundraising continues to be sluggish, particularly as many institutional investors have not yet had enough time to digest the public market rebound (i.e., recognize it, hold a board meeting, agree to begin making new commitments). And it’s not just demand. Many PE firms themselves wrote off 2009, instead opting to ramp up fundraising in 2010. Expect LP mailboxes to be stuffed full of blue books come January.
Back [bak], 4: Private equity is a “follower” [foll-O-er] asset class, thus a public market comeback translates into a private market comeback. First, rising public markets help smooth the way for PE-backed IPOs, including last week’s Avago Tech offering and this week’s Emdeon offering. This leads to distributions (or at least the promise of distributions), which leads to LP commitments which leads to new deals. It also causes public companies (i.e., strategic acquirers) to worship their paper values again, which facilitates their willingness to part with actual cash. Your basic ripple effect, which is further amplified by rising fair-market valuations (and you thought FAS 157 could only be used for evil)…
Give me a quick moment while I do the math… Seems private equity is “back,” by a 3-1 score. It’s not quite a sweep (no, New York readers, I do not want to talk about it), but a solid victory nonetheless. Per usual, however, I encourage you to tell me where I erred…