P/E investments in financial services surging

With plenty of cash, private-equity funds are on the prowl; 'deal activity accelerating'
SEP 27, 2010
Private-equity activity in financial services is up 17% from a year ago, and the momentum continues to build, according to a report released today. The outlook for the second half of the year is for P/E activity in the financial services sector to surpass the first half by 50%, Freeman & Co. LLC said in its fifth annual report. “Deal volumes collapsed during the crisis, but we now see deal activity accelerating, driven by sales of non-core assets by banks, a more stable economic environment, and the re-emergence of the debt financing markets,” said Freeman managing director Eric Weber. Total deal volume in the financial institutions group during the first six months of the year included 35 investments by P/E firms with a total value of $8 billion. This compares with 30 transactions worth $7.3 billion during the first half of 2009. The average transaction size this year was $331.2 million, which was down slightly from $365 million during the first half of 2009. The latest research shows that transaction volume in the private-equity sector is beginning to stabilize after a two-year decline. The pace of transaction activity within the financial services sector is behind last year's total, but this year's dollar volume could surpass 2009, which saw a total of 78 deals worth $14.8 billion. The pace is still well off 2008, when there were 149 deals worth $25.3 billion. The current activity stands in stark contrast to the peak of 2007, which saw 243 deals worth $88.4 billion. The outlook is bright, according to the report, because after record-level fundraising efforts from 2005 to 2008, followed by a slowdown in deal making, P/E firms have approximately $500 billion in uncommitted capital to put to use. Freeman divides the financial industry group into six subsectors, including asset management, banks and brokerage, business services, financial technology, insurance, and specialty finance. The report is forecasting a second-half activity surge that will drive total 2010 dollar volume to $20 billion. Driving the activity, according to the report, is increased access to credit, the large cash overhang, and the trend of increased deal making that has already begun to unfold during the current quarter.

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