US GPs forecast modest uptick in deals

A majority of private equity GPs in the US anticipate closing more deals this year than last year, though only 36% expect to invest in more than four new companies in 2013, according to research conducted by BDO.

General partners in the US expect to see only a slight increase in the number of deals they close this year compared to 2012, according to accountancy and advisory house BDO.

About 57 percent of GPs, regardless of fund size, said in a survey they anticipate closing between two and four new deals during the next 12 months, compared to 47 percent that completed between two and four investments in 2012. While a minority of fund managers – 36 percent – expect to close more than four deals this year, only 7 percent of GPs forecasted closing more than four deals in 2012.

“We’re seeing a lot of activity already,” partner in BDO’s transaction advisory practice Ryan Guthrie told Private Equity International. “There are some good indications that there will be some nice opportunities this year. It may not be a ‘knock it out of the park’ year but I don’t expect it to be a bad year and it could be a pretty darn good one.”

One of the main drivers of US deal activity in 2013 is expected to come in the form of private equity firms selling portfolio companies to other buyout shops, as 64 percent of GPs said private equity exits would be a “key driver” of deal flow this year. Secondary buyouts – when a company passes from one private equity firm to another – have produced returns as good as, or at times superior to, primary acquisitions, according to recent research from Boston Consulting Group. 

Holding periods, however, are expected to last longer in 2013, as 82 percent of GPs said their current expected average holding period is longer than it was 12 months ago.

While GPs rushed to sell companies in advance of the expiring Bush tax cuts in 2010, leading to a lull of activity during the first quarter of 2011, the anticipated increase in tax rates following the fiscal cliff negotiations has not produced a slow environment so far in 2013, Guthrie said.

“I was expecting to see something similar in 2013, but we started to see the activity come back online in mid to late January, which is a pretty darn good sign.”

BDO’s survey analysed data from more than 100 private equity professionals in the US with assets of between $15 million and 157 billion.