Survey: Smaller PE firms to be ‘most active’

Small firm GPs anticipate increased deal flow in the second half of 2010 and more 'club' deals, according to a recent survey.

Small and mid-sized private equity firms are expected to see an increase in deal flow in the second half of 2010, according to a survey by Rothstein Kass. Of the 199 firms participating in the survey, entitled, “Private Equity in 2010”, roughly 60 percent had total assets under management below $50 million.

Unwillingness among lenders to extend credit, the report states, has limited the amount of debt available to finance acquisitions, resulting in smaller transaction sizes and more opportunity for smaller firms to invest in companies that don’t meet the revenue requirement of larger firms.

As a stagnant market continues to thaw, smaller private equity firms – particularly those with specialised knowledge – will be the most active.

Tom Angell

“As a stagnant market continues to thaw, smaller private equity firms – particularly those with specialised knowledge – will be the most active,” head of the Rothstein Kass private equity practice Tom Angell states in the report.

Of the firms surveyed with less than $50 million in assets, around 85 percent plan to raise new investment capital during 2010, more than double the percentage of firms with more than $50 million AUM who have similar plans.

Still, more than 70 percent of firms surveyed – large and small – predicted it would be more difficult to raise new capital in 2010 than in 2009.

The report references the fact that smaller private equity firms have been successful in competing for larger transactions by participating in club deals, “a trend that could be bolstered by greater restrictions on the use of leverage”, said Angell. Nearly 39 percent of respondents expected that private equity firms would more frequently form consortiums to execute large transactions.