By Sandy Scearce, Grant Thornton

2009 marked a difficult year for many businesses. Private equity-backed companies or those looking for private equity funding were no different than companies who sought bank loans. With the largest financial crisis in history and the collapse of the U.S. banking system, most business leaders would rather forget the severity of how these events hampered every aspect of economic growth.

The challenges that banks and other lending institutions continue to sort through have substantially impacted private equity deal-making. With very little leverage available to complete deals, private equity deal-making came close to a standstill last year.

In fact, in 2009 the value of deals in the United States hit its lowest total since 2001. Less than 500 private equity deals were completed in 2009 for a total of $31 billion. That pales in comparison to the more than 700 deals completed in 2008 for double that amount, which was no where near a stellar year for the industry.

So, instead of working on new deals, private equity firms have focused on trying to keep their portfolio companies as healthy as possible. While recovery is underway, many businesses looking for private equity are wondering what opportunities will arise in 2010.

The good news is things are beginning to improve. But, with all of the player changes in the lending environment, you might be wondering how different or difficult it will be to find funding and loans in 2010 and beyond? Here are a few predictions:

  • 2010 will be a year to make deals, but buyers need to be careful. Pricing will be high for healthy, quality assets and competition will be fierce.
  • Lenders will be performing more due diligence than ever before, and firms that are well-positioned stand to benefit the most.
  • There will be a slow, gradual increase in deal volume in the coming year compared to 2009.
  • An increasing number of distressed deals are expected, creating opportunities to buy debt that can be converted into equity when the company is restructured.
  • With all the distressed companies in need of capital, pent-up demand for sales of healthy assets, and the slight thawing of the lending markets, 2010 could prove to be a solid year to start making deals that yield strong returns.
  • Prior to the financial crisis, deals could be completed with as little as 10 percent of equity; now, more than 40 percent equity is likely to be required to complete a deal.

What are your predictions for 2010? Please provide us with comments on this subject.

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