Theo O'Brien

Still Years Away from Private Equity's Triumphant Return

There seems to be a fascination with announcing the return of private equity, fueled by the vague hope that the prediction will come true. While we are seeing positive signs for private equity, a "comeback" is not going to be instantaneous nor will it be a reproduction of the heyday of a few years ago. I think your analysis is pretty on-target. I'd just like to add that the excitement over the $400 billion pool of capital should be considered with the FT's findings that private equity firms owe roughly the same amount.

"The biggest private equity groups face more than $21 billion of debt maturities in the next two years, the newspaper said, citing data from S&P LCD. To that must be added a further $50 billion in 2012, $115 billion in 2013 and $192 billion in 2014."

This puts an interesting dilemma for private equity firms who have that debt hanging over their heads: Do we try to keep the traditional leverage ratio, or use primarily equity in future deals? Now very few banks will be willing to help leverage the deals but if the PE firms are paying back the debt then there is less cash available to correct the ratio.

--Theo O'Brien
PrivateEquityBlogger.com