Ernst & Young’s recently released mid-year report, “2009 U.S. Private Equity Watch: An Industry in Flux” is a detailed and readable summary of what went on in private equity during 2008 and early 2009. The short version: things are still bad.
E&Y points out that the market for exits is largely frozen, leverage is scarce, and more regulation is on the way. There will likely be a shakeout in the U.S. private equity business as burned investors flee to quality.
The good news is that the industry has proven itself adaptable over the years and, as every GP keeps telling himself or herself, the best PE investments are made in the middle of the worst economic downturns. Read the whole thing here.
Gregg Slager, E&Y’s America’s private equity leader, says the thing that surprised him most compiling the report was just how few exits private equity investors have enjoyed lately. The paper notes “2008 was the worst year for [IPOs] since 1978” and the handful of issues so far this year don’t suggest 2009 will be better.
As for deals in general, Slager says buyers and sellers are still far apart. “Its just continued to be a very bad environment to sell into,” Slager says. Buyers are looking for deep discounts and sellers haven’t yet come to terms with the kinds of haircuts they will have to accept. Slager says he expects that gap to narrow—and the quality of assets offered for sale to improve – over the next six months or so.