The big players in private equity are set to jump back into the market in 2011, reports Time magazine. Companies such as Blackstone Group, Silver Lake Partners LP, TPG Capital, and Bain Capital Partners are poised to boost their M&A and IPO activity to levels not seen since before the 2008 crash.
One reason is that many PE firms are under pressure to exit investments made prior to the meltdown. They need to deliver tangible returns to investors before any investors are likely to commit new capital. “Their lifeblood is fundraising, and if they don’t have the funds around, obviously they’re out of business,” according to Jay Marshall, managing director at AlixPartners, a corporate consulting firm.
Another reason is that some private equity managers are worried that the Obama Administration may raise the tax rate on carried interest when the Bush tax cuts expire at the end of this year. New rates could hike the tax to roughly 40% from its present rate of 15%. Any deals closed before year-end could potentially escape the new tax grab.
M&A activity in the U.S. is up 8% for 2010, according to data from Dealogic. Private equity buyouts have surged even more, by 72% to $62.6 billion in 2010, up from $36.4 billion in 2009. There have been 40 private equity-led IPOs in 2010, triple the number in 2009.
Yet another catalyst driving M&A and IPO activity is the “clock” ticking on funds raised before the recession. Fundraising and investing may have ground to a halt during the crisis. However, PE firms are still sitting on top the pile of cash they raised prior to 2007, and they typically have only a five or six-year window in which to invest the capital, or risk having to return it to investors. Thus, there’s a sense of urgency to put the money to work now.
What does all this mean for private equity jobs and hiring? Well, M&A and IPO activity breeds work. So job seekers and switchers should focus on the sectors most likely to see big activity in the next year or two. This includes the restaurant, lodging, healthcare and technology sectors.
What’s your take? Is your firm experiencing an uptick in M&A or IPO activity? Has this trend affected your career prospects? Add your comments below.
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