Update: Watch the video here.
I’ll be on CNBC’s Sqwawk Box program tomorrow morning at 7:40am ET, to discuss how the recent public market correction will affect private equity and M&A activity.
My initial thoughts harken back to a speech given by Scott Schoen of Thomas H. Lee Partners, during last year’s Yale Private Equity Conference. He noted that LBO firms might actually benefit from a market downturn, because they: (a) Are flush with dry powder and (b) Would be able to buy companies cheaper once the bears bury the bulls. Sure it’s more than a bit of a self-serving argument, but that doesn’t mean he’s wrong.
The only caveat is that the aforementioned scenario presumes a relatively short market slump — after which LBO firms could bring companies back to market at increased valuations. If the downturn were to become prolonger — as part of a recession, perhaps — LBO firms would be stuck with portfolios full of overpriced assets. The consequence would be that Schoen’s win-win scenario would morph into win-lose.