By Jason Rigoli, Principal at The White Oak Group
Recently on Strategic Growth…Capital Style we’ve talked about the merger and acquisition market heating up and venture-backed M&A deals making a come back. So, you can imagine our disappointment last week when the Dow Jones LP Source said the U.S. private equity fund-raising dipped 8% to $17.6 billion during Q1 2010, compared with Q1 2009.
The amount is substantially lower than the $65.9 billion raised in the Q1 2008, which proves how hard the industry has been hit by the economic downturn and credit crunch. According to Dow Jones:
“The fundraising total is negligible, but the story behind the numbers is telling,” said Jennifer Rossa, managing editor of Dow Jones Private Equity Analyst. “Many commitments made during the first quarter were to funds early in their fundraising process unlike the same period last year when many closes were holdovers from 2008.” Leveraged buyout and corporate finance funds accounted for more than half the total, while venture funds raised $4.1 billion, a 41% increase from the same period last year.
So, how does this challenging fundraising environment impact private equity deals in 2010 and beyond? While new funds are struggling to meet their fundraising goals it is important to note that fundraising in 2007 and 2008 was so strong that more than $1 trillion in private equity capital remains available for future deals … that is a lot of “dry powder.” As debt markets continue to rebound we will see funds aggressively allocate this capital to more deals.
But, what does this mean for businesses in the Washington, D.C., region looking for capital? There are a number of 2007/2008 vintage funds that are actively looking for investments in the Washington area and in the government contracting space in particular. The government contracting industry stood out as a “safe-haven” for investors during the recent recession and that point is not lost on the private equity community.
If you are a private-equity backed business in the D.C. region or a company looking for an equity partner, please let us know what you’ve experienced so far in 2010.