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PE & VC News

In the mergers and acquisitions world (M&A), 2014 is off to an incredible start.  We’ve seen Valeant’s $46 billion proposal for Allergan (April 22).  About a month later, May 18, we saw AT&T acquire DirectTV .  On June 15, Medtronic acquired Covidien in a deal worth about $43 billion.  Earlier in the year we digested Comcast’s $45 billion move to buy Time Warner, a move slated to create the nation’s largest cable company.  These are, of course, only a few of the M&A announcements the market has experienced in a little over the first half of 2014.  So what does this activity look like in comparison to M&A deals over the last 10 years?

2004 to 2014 M&A Activity

Here’s a look at the total mergers and acquisitions deal volume over the past decade.

Amazingly, there’s already been $864 billion in M&A deals (as of publication) so far in 2014.  Annualizing the $864 billion comes out at almost $1.6 trillion.  Should $1.6 trillion in deal volume materialize, it would place 2014 M&A activity as the highest ever, surpassing the $1.57 trillion experienced in 2007 U.S. deal volume.

Mergers and Acquisitions

Should PE Professionals Be Worried?

Interestingly, M&A activity has not followed the typical recovery momentum.  Instead of consistent, steady growth in deal volume as there was from 2004 to the pre-housing recession of 2007, the current M&A business cycle recovery has been choppy. M&A activity bottomed in 2009 at around $753 billion, about half of 2014’s current pace.

Following bottoming in 2009, M&A activity barely budged in 2010, increasing to $795 billion or 6 percent.  After a mediocre 2010, M&A activity experienced a mini-jump in 2011, going from $795 billion to $964 billion – over 21 percent growth.

The 2011 jump was a jump that didn’t last.  M&A activity slumped in 2012, dropping slightly from $964 billion to $933 billion – down 3 percent. In 2013, M&A activity experienced moderate growth at 9 percent, going from $933 billion to $1.0 trillion.  Following that moderate growth, M&A growth into 2014 has been feverish so far.  Through the middle of July, M&A volume is at $864 billion, more than all volume in 2009 and 2010.  If the trend continues, M&A volume will end the year up almost 85 percent to $1.6 trillion.

So, should PE professionals be worried? If the global economy really is accelerating, then the answer is probably no.  Instead, if this view turns out to be correct, 2014 is just the beginning. Alternatively, if the global economy does not accelerate, the magnitude of the 2014 jump likely will not prove to be sustainable.

2014 – Just the Beginning?

Overall, the 2014 M&A volume may give PE professionals reason to pause and take an overall macro view of the world’s economies.  The incredible spike in 2014 may turn out to be just the beginning of strong activity as the economy regains steam.  Alternatively, the 2014 experience may be setting the stage for a disappointing 2015.


Pretty much everyone knows the western world is experiencing one of the worst recoveries on record.  This is quite evident when looking at the incredibly long time it took for employment to get back to where it was in 2008, by the tentative growth in GDP, by the weakness in wage inflation, by the stubbornly high unemployment rates, and by the inexplicably low central bank target rates.

In terms of politics, the weak recovery is one of the many reasons a majority of the American public is tired of the sitting Democratic president. With general frustration with the rate of the current economic recovery, one might ask – could the weak recovery have something to do with finance?

The simple answer to this simple question is surely yes.  The financial world affects large swaths of the business world, including the price of credit, the price of money, expectations formation, and the divvying up of risk, to name just a few.

Given the importance of the financial world to the economy as a whole, one way to inspect how well the financial sector is doing is looking at employment in the industry.

Financial Employment – by President

The figure shows the percentage growth in employment in the financial industry by president.  The horizontal axis is the number of months into the given presidency. Perhaps unsurprisingly, financial employment under President Obama is the worst in at least the past 60 years, with total financial employment still 1.2 percent below where it was in January 2008.

Financial employment performed the best under presidents Reagan and Eisenhower, with industry employment up over 27 percent during both individuals’ presidencies.  Financial industry employment also performed relatively well under presidents Truman and Clinton at 21 and 18 percent respectively.

One last interesting note is that there’s appears to be a long-term trend towards slower overall growth in the financial industry’s employment practice.  This is evident when noticing that the bottom four performing presidencies have been the past four presidents.  It, of course, doesn’t explain or excuse the lackluster jobs recovery in the financial industry under President Obama’s watch, but it does point to the fact that there are some underlying trends eating away at employment growth in the financial sector.  Unsurprisingly, the same trend is generally present in the overall employment figures, although to a much less noticeable extent.

Total Financial Employment Change by President, 1948 to Today

What’s contributing to the slow financial industry recovery under President Obama?

Interestingly, professional labor market observers can point to at least a couple policy actions that are at least partially to blame for the poor employment recovery in the financial sector.

First, Dodd-Frank.  The latest political fireball lobbed at the financial industry has caused financial firms to rethink their role in commodity trading and other “politically sensitive” activities.  Second, banks are preparing for Basel III capital requirements and other banking regulations, which certainly put downward pressure on the profitability of certain activities. Both of these are Obama Administration initiatives.

Overall, when looking at employment in the financial industry by presidency, the current Obama Administration comes out on bottom, with presidents Reagan and Eisenhower on top.  Among the factors driving the poor recovery in financial industry employment are two policy decisions – Dodd-Frank and Basel III.


Anyone who follows the private equity/venture capital world knows that political entities attempt to recruit business startups.  Over the past few years, leaders in various areas, including New York, Utah, and other traditionally less important areas, have promoted the growth of their startup scene – and their efforts are being rewarded.

What Do the Numbers Show?

Price Waterhouse Coopers has a report on total venture capital investments since 1995.  Total investments peaked in the first quarter of 2000 at about $28 billion.  Following the peak, the technology boom bottomed out in the first quarter of 2003 at about $4 billion.  After bottoming, venture capital investments doubled to about $8 billion in the fourth quarter of 2007 (the doubling doesn’t look that big when the technology boom is included in the graphic). The housing bust knocked off $4 billion, reaching a trough in the first quarter of 2009 at a little below $4 billion.

Since bottoming in 2009, venture capital investments have accelerated again, growing to a little less than $6 billion in the first quarter of 2013, and since, expanding to a projected $10 billion in the second quarter of 2014.

vc deals by year

Slicing the Numbers by State

Let’s take a look at the data since 1995.  The kings of venture capital world are located in California.  Far behind, in second and third places, are businesses headquartered in Massachusetts and New York.  A comparison of how venture capital rankings have changed by year by state follows the line plot.

Perhaps surprisingly, there’s been some big shifting since 1995 among those states not in the top 4 (California, Massachusetts, New York, and Texas), with the biggest change occurring in Utah.  The startup scene in Utah has grown from a ranking of 27th in 1995 to 6th today.  The rise of Utah is amazing given that the population in Utah is less than 1 percent of the total population in the U.S.

Among the states with deterioration in ranking are Kentucky, Louisiana, South Carolina, Tennessee, and New Jersey, which include some of the biggest decliners.

vc deals by year by statevc rankings by year

Startup Scene Growth Since Start of Recovery (after 2009)

On top, again, by a far margin, are startups headquartered in California, at over $72 billion from the first quarter of 2009 to the first quarter of 2014. In second place are startups located in Massachusetts at about $15 billion. Rounding out the top five are New York ($10 billion), Texas ($6 billion), and Washington ($4 billion).

At the other end of the spectrum, businesses headquartered in Alaska (PwC has $0), Wyoming ($11 million), Mississippi ($14 million), Hawaii ($23 million), and West Virginia ($25 million) have seen little growth in venture capital investments since 2009.

cumulative vc investments by year by state


Overall, venture capital investments continue to grow during the economic recovery.  Perhaps surprisingly, when slicing the growth in venture capital investments by state, the recovery has largely been dominated by investments in firms located in California, Massachusetts, New York, and Texas.

Although the numbers show firms in California, Massachusetts, New York, and Texas dominating the venture capital world, some areas show significant gains over the years, including, for example, Utah.  The home of the 2002 Olympics has seen venture capital within its borders expand from a rank of 27 in 1995 to a rank of 6 in 2013.  On the other end, venture capital investment in states such as South Carolina or New Jersey has lost ground over the past 15 years.


The End of American Economic Dominance. Will American Finance Follow Suit?

June 30, 2014

Just about everyone that follows politics and economics knows that businesses in the United States dominated the world economy in the 1980s and 1990s.  Really, American-based businesses have been king of the business world since World War II.  That dominance has loudly come to an end. Unsurprisingly, the end of American dominance of the world’s […]

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Why Are Venture Capitalists So Interested in Education?

June 16, 2014

Innovation in the education area may have a bright future after all, at least if one judges it by the exponential growth in venture capital interest. Overall, data out of Pitchbook indicate strong growth in deal activity and the total invested capital in U.S.-based education startups over the past ten years. Total invested capital has grown […]

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How Has Financial Employment Performed Over the Past 11 Business Cycles?

May 19, 2014

Most everyone has seen the following chart of employment change from peak to peak for the past 11 business cycles. (Some analysts choose to ignore the 1943 recession for shock reasons, essentially making 2008 look the least appealing of them all.) The label for each line represents the year in which the recession started; the vertical […]

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The Story Liberals Don’t Want You to Hear

May 5, 2014

Since the onset of the economic crisis in late 2007, liberals and conservatives (and economists with like-minded leanings) have been ferociously debating two issues – inflation and debt.  On inflation, liberals generally argue that inflation wasn’t an issue.  By arguing such, liberals were able to claim that the best way to deal with the economic […]

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Is Financial Employment Correlated with High Minimum Wage Laws?

April 7, 2014

With minimum wage laws a topic of policy discussion recently, this article asks the question –is there a correlation between higher minimum wage rates and financial employment by state? The main theory is that states with financial centers may get pressure from the public to increase the minimum wage above what elected officials experience in […]

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Hours per Week and Annual Pay – Who is on Top?

March 24, 2014

Individuals in the private equity industry work a lot.  They also make a lot for those long hours. If one divided working individuals into 10 hour groups – meaning some percentage of individuals work 40 to 49 hours per week and some individuals work say 80 to 89 hours per week – which hour group […]

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When will Venture Capital Firms Move Away from California?

March 10, 2014

Since at least the 1980s, a large, disproportionate share of venture capital investments have been made in firms located in California. When will this trend come to an end? First, here is some background.  The following animated GIF shows venture capital investments by year by state since 1995 (a link to the interactive Tableau Public […]

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