Reasons why the Private Equity Boom Might Not Be at an End

Henny Sender

thinks that "some signals" seem to be hinting that this is the beginning

of the end of the private-equity party. Well, yes — but then again, pretty

much exactly the same signals were there two years ago, and ended up signaling

exactly the opposite.

It’s worth noting that there are also some signals pointing in exactly the

opposite direction. And rather than being anecdotal, based on public statements

from private-equity professionals who have a vested interest in talking down

the market, the bullish signals are more quantitative.

For one thing, private equity is clearly booming. $281 billion of private-equity

deals have been announced so far this year, triple the level of just one year

ago, and there has been $82

billion in announced deals just this month — a new all-time record,

beating April’s $78 billion and last November’s $81.6 billion.

What’s more, as Alphaville

notes today, there’s still a lot of room for buyouts, with three-fifths of UK

chief executives (I’m sure the proportions are much the same in the US) saying

they are not open to private buy-outs, and 14% saying that they would never

accept an approach of any kind, under any circumstances.

This doesn’t make a lot of sense: CEOs of private companies have just as much

job security, make more money, have fewer regulatory hassles, and have a longer-term

outlook than their public-company counterparts. As more public-company CEOs

realize this, we’re likely to see more, rather than fewer, privatizations. After

all, no private-equity shop likes making a hostile bid: it’s much more

pleasant for all concerned for the deal to be amicable.

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