Financial services deal sizes are returning to their pre-2008 levels, owing to more than £500bn in capital waiting, due to ‘dry powder’ that has been accumulated by private equity firms, attendees at the Guernsey Funds Forum heard at its annual event.
Furthermore, according to Joseph Cohen, a panellist at last week’s event held in London, pictured above, it is resulting in a greater number of ‘club’ deals in the buyout arena as private equity firms team up to complete their deals.
“It’s estimated that there’s about £500 billion of capital waiting for deals currently,” said Mr Cohen, a founding partner at Trilantic Capital Partners.
With annual fundraising levels also returning to their pre-2008 levels, coupled with a slower deployment rate, Cohen said it was inevitable that deal sizes were increasing.
‘Very, very large transactions’
“You will see the very, very large transactions that by and large were not around post-2009 to 2012/2013. You’re also seeing the return of club deals,” said Cohen. “For a long time, club deals were a hallmark of the pre-2008 period within the buyout industry.
“It was actually seen as a dirty word post-2008. Now, unashamedly, it’s back with a lot of transactions and, clearly, you are seeing prices going up,” Cohen told the 450-strong audience.
He added that the availability of unitranche debt on relatively generous terms was fuelling much of the activity, a consequence of which was that prices for mediocre assets and businesses were higher than reasonably expected.
Fellow panellist Ed Gander, Partner at Weil, said it was a ‘seller’s market’, and likely to remain that way for a while, particularly when taking into account recent interest rate announcements.
“Because pricing has been so high in a number of sectors, there’s a lot of auctions that go on and there’s obviously only one winner,” said Gander.
“There’s often four, five, six or seven bidders in these auction processes – only one gets the asset. The other four or five are left empty handed and have to go again. There’s a great deal of activity out there, but because of the way pricing is going at the moment, it’s actually proved very hard for buyers. It’s definitely a seller’s market in most of the sectors,” he said.
The eighth annual Guernsey Funds Forum took place in London on 11 May. Hosted by Guernsey Finance, in conjunction with the Guernsey Investment Fund Association, it was moderated by ITV News anchor Alastair Stewart and featured renowned hedge fund manager Crispin Odey as its keynote speaker.