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PE Investments in FIG On Pace for Strongest Year Since Crisis, Freeman Says

This year should be the best for PE investments in financial services since the financial crisis, according to Freeman & Co.

So far in 2011, there have been 69 PE transactions in financial services. But only 48 disclosed their valuations, Freeman said. Whatever the number, the deals totaled $14.9 billion during the first half of 2011, said Freeman, a New York IB that focuses mainly on financial services.

Last year, there were about the same number of deals, 70, valued at $10.1 billion, Freeman said. The average deal size this year was $309.4 million, a 39% increase from the $222.7 million posted during the first half of 2010.

Freeman & Co. expects private equity firms to invest about $35 billion in FIG this year, according to the firm’s annual report, “Private Equity Focus.” This is up 16% from $30.1 billion in 2010, Freeman said. Much of that growth is expected to come from increased deal values. The average transaction size in 2011 has jumped by about $90 million, said Pat Sturgeon, a Freeman spokesman.

“Although the staggering deal volumes that characterized the private equity boom from 2004 to 2007 do not seem to be returning anytime soon, 2011 should be the best year for FIG PE in terms of deal value since the financial crisis,” Freeman said in its annual report, Private Equity Focus.

The hottest sectors? Banks & broker-dealers as well as specialty finance. Transactions for banks & broker-dealers rose 44% to 13 during the first half of 2011. The 13 deals are valued at $3.4 billion, Freeman said. This compares to nine transactions in 2010 totaling $2.4 billion.

Deals in specialty finance also increased to 13 transactions in 1H 2011, valued at $7.7 billion. This compares to 11 specialty finance deals in 2010 valued at $1.3 billion. (Much of 2011’s deal value increase in specialty finance is due to Cerberus selling Chrysler Financial to TD Bank for $6.3 billion)

Insurance showed the biggest decline in deal activity. Three transactions were completed so far in 2011, down from seven in 1H 2010. Deal value actually rose. This year’s three insurance deals are valued at $2.4 billion, which is up 50% from the $1.2 billion totaled in 2010. However, most of this was due to JC Flowers’ $1.2 billion buy of Groupe Prevoyance, a French loan insurance broker.

Mega deals–those transactions valued at above $10 billion–are nonexistent, Freeman said. However, there’s still a healthy amount of deals valued at above $1 billion, the IB said.

The PE overhang continues to be big news. PE firms are estimated to hold over $300 billion in uncommitted capital, Freeman said. Roughly $97 billion was raised in all sectors during the first half of 2011, Freeman said. Large funds, those with 2005 to 2007 vintages, need to deploy capital which should serve as a strong catalyst for PE activity in the next 18 to 24 months, Freeman said.

This year is expected to be the most active for exits of PE-sponsored portfolio companies since 2008. There has been $9 billion of exits completed so far in 2011, compared to total exit value of $10 billion for all of 2010, Freeman said.