Increased regulatory certainty and reduced concern over political risks will contribute to a healthier deal environment for US private equity firms next year, according to Brett Palmer, president of the Small Business Investor Alliance, a member organisation of lower mid-market funds and investors.
A greater understanding among general partners of the US Securities and Exchange Commission’s investment advisor registration process and the final language of the Volcker Rule – combined with the knowledge that the US will not be facing another threat of a government shutdown in early 2014 – should help usher in a wave of deal activity that stalled during the first two quarters of 2012.
“That lets private equity [firms] focus on business risks and not political risks,” Palmer said. “I’m talking to funds and they’re looking forward to all of the deals that are coming back online…The fact that [political risk] is not a major issue for once is a positive step for the business.”
One of the issues resolved by the final version of the Volcker Rule pertains to Small Business Investment Company funds, which are exempted from the rule that limits banks’ abilities to invest in private equity funds.
“In 2013 you’ve seen a real turn in favor of private equity, with small business investing leading the way,” Palmer said. “I think that is going to continue going forward”.
While political dysfunction such as the US fiscal cliff hampered deal-making in the first few months of 2013, the outlook for investment activity in early 2014 should be much healthier, according to Palmer.
“You’ll have a much more stable deal path than you’ve had over the past two years,” he said.