Bleak year for private equity

After the global financial turmoil and private equity drought that prevailed throughout 2008, few were optimistic about the prospects for private equity M&A activity in 2009. Even those who predicted a continued low level of financial sponsor activity in 2009, however, may not have expected the type of year that many participants in the private equity industry would like to forget. In conjunction with a continued significant decline in global M&A activity, financial sponsor buyouts worldwide suffered another sharp fall-off, declining to their lowest level since 2002. Debt financing was extremely scarce, and many financial sponsors were forced to utilise any such available debt to address issues at existing portfolio companies rather than financing for new acquisitions. Financial sponsors continued to struggle with portfolio company distress and defaults as operating performance declined and substantial debt loads with looming maturities placed heavy burdens on cash-strapped companies. In addition, in light of public criticism of the financial and investment industries, many regulators (as well as the public) have increased their scrutiny of the private equity industry, and various regulatory agencies in the United States and the European Union have proposed new regulations that could significantly impact financial sponsors. Notwithstanding all of the issues faced by financial sponsors in 2009 and the overall bleak environment for private equity that prevailed throughout most of the year, an opening of the capital markets, an increased number of initial public offerings of portfolio companies and several multi-billion dollar LBOs in late 2009 may be grounds for some cautious optimism for 2010.