Private equity’s “dry powder” pushing buyout valuations higher
Private equity firms ended 2013 with a record $1.07 trillion in “dry powder,” or capital committed but yet to be invested. But some deal makers have indicated that tough competition among buyers and high prices for sellers are creating some challenges, including lofty valuations.
The Wall Street Journal and The New York Times recently reported that some private-equity firm executives have indicated they’d like to be investing more, but they’re trying to avoid overpaying at a time too few firms are willing to sell.
“A number of private equity executives have noticed an increase in competition for deals in the last year or so,” The New York Times reported. “Low interest rates and generous bank financing have also contributed to a market in which prices can rise to dizzying heights, deal makers say.”
The Wall Street Journal quoted Blackstone Group President Hamilton “Tony” James as saying sustaining the same level of investment as in 2013 has been difficult. “It is frustrating for our guys to keep going after things and keep getting outbid,” James reportedly said.
Research firm Preqin earlier this year said that while private equity buyout firms in 2013 had their highest value ($274 billion) of buyout investments since 2007, the number of deals actually fell by 11 percent from 2012. Three-quarters of all buyout deals backed by private equity firms in 2013 were those valued at less than $250 million, according to Preqin.
Sageworks, the leader in the financial analysis of privately held companies and maker of ProfitCents, recently unveiled a business valuation platform that helps CPA firms, private equity firms and valuation firms determine an accurate and legally defensible value for private companies. Sageworks Valuation Solution is a commercial grade, web-based solution that will evaluate projections based on the income, asset and market approaches. It also incorporates Sageworks’ private-company database to allow users to benchmark performance of a business against similar businesses from across 1,400 different industries.