US private equity dealflow optimism tempered by inflation – COO panel

US dealflow is super hot, said participants at Private Equity International's CFOs and COOs Forum 2021.

Private equity dealflow in North America is powering back, fuelled in part by a potential corporate tax rate hike by the Biden administration, but inflation is emerging as a real risk, a panel at Private Equity International‘s CFOs and COOs Forum New York event last week agreed.

“On the one hand, you’re seeing extremely high levels of ramped-up optimism. On the other hand… we are seeing signs of inflation now,” said a participant, speaking under the Chatham House rule. “It’s challenging, as a fund that’s investing, to find companies that are insulated” from inflation.

The panel featured private funds COOs and CCOs responsible for sourcing opportunities, either for the firm, portfolio companies or both.

“The market is as hot as it’s ever been in dealflow,” said one of the panellists, adding that the year to date in May was up 150 percent in activity, without citing a source for the number.

Another panellist reported that founder-owners are saying: “I’ll do a deal if I can get it done this year, because of increasing risk of tax hikes. It’s helped by a lot of capital and leverage being available.”

US president Joe Biden’s Build Back Better programme includes plans for corporate tax rates to rise to 28 percent from 21 percent. Senator Joe Manchin, a Democrat from West Virginia, opposes the rate but says he could support a 25 percent tax.

“It’ll be a substantial increase and there’ll be a lot of dealflow in the lower-middle market… and motivated sellers,” a speaker on the panel said. “Valuations will go up next year in order to defray the tax burden they [founder-owners] are going to be shouldering.”

The speakers agreed that inflation was real and spreading.

“Number one, inflation is happening in labour. Any employee within 15 minutes of an Amazon facility is facing heavy competition” as the internet retail giant has set its minimum wage to $15 an hour, a panellist noted.

Inflation was manifesting elsewhere, with shipping container costs to China surging and a shortage of truck drivers.

Unpicking the underlying performance of some potential acquisitions in a pandemic was proving tricky too.

“It’s really hard to get your arms around what’s real,” a panellist commented, citing a business that benefited “of course” from selling personal protective equipment and which is now pivoting toward new customers.

Out of favour, in view of the panel, were companies in the oil business.

“It’s not a great long-term play,” said one. “So many young folks look ahead and they’re making a very calculated decision now to move [out of oil] into a different sector.”

The CFOs and COOs Forum New York event is a membership benefit of CFO All Access, the exclusive community for private fund CFOs, COOs and CCOs. The debate around deal opportunities and taxation policy continues in private on CFO All Access. To join and participate, visit