Source: GF Data Resources
SDR continues to perceive a market paralysis on a local and national level. Market players are awaiting a perceived bottom and/or focusing on strategic initiatives within existing portfolio investments. Numerous factors point to a cataclysmic shift in deal activity on the horizon:
- Tremendous amounts of capital was raised between 2005 and 2008. Generally speaking this capital has a 5 year harvest window and much of the capital raised has yet to be put to work.
- Stung by macroeconomic forces, numerous operating companies that considered an exit or liquidity event in 2009 have delayed entering the market. For the past few months, SDR has been reporting that numerous economic indicators (1, 2, 3) are signaling a recovery, essentially removing the macroeconomic forces that have held exit plans in check.
- Much like private operators/shareholders, private equity firms have been scrambling to maintain performance levels within existing portfolio companies. As the recovery gains momentum, traditional investors can put down the fire hoses and resume the search for new investments.
SDR believes that 2010 will be a break-out year in terms of deal volumes. Companies considering an exit or liquidity event in 2010 or 2011 need to make appropriate adjustments and preparations now to take advantage of the impending increase in deal activity.
If shareholders envision an exit or liquidity event in 2009, window-dressing, strategic initiatives and initial preparation should be underway currently. Don’s “Fix the Gutter Now” article would be a good starting point for shareholders serious about maximizing value.