Friday, December 18, 2009

Buyout Hunger and I-Bank Starvation

PE firms think they can find public equity bargains even in a stock market rally driven by hype:

Buyouts are finally returning for the deal-hungry private equity industry, which is looking at 2010 to deploy huge cash reserves into deals that buyers hope could get back up to double-digit billions.


Good luck with that search. Plenty of investment banks will jump at the chance to help, given the paucity of merger deal flow headed their way:

Advisory fees generated by M&A deals totaled $18.9 billion, down 46 percent from 2008 -- the worst annual level since 2003. For the first time in six years, M&A was not the main source of fees for investment banks, representing just 27 percent of all fees earned this year, according to Thomson Reuters.


The time is ripe for a bunch of fee-starved i-bankers to push questionable deals to PE managers desperate to show off for their clients. Gotta look busy to earn those fees. Deal pitchbooks in the near term will be long on optimistic growth assumptions (headwinds: declines in consumer spending) and short on explaining how PE firms can wring operational efficiencies out of public firms that are already cutting to the bone.