A couple weeks ago, I posted that the overhang of unsold private equity portfolio companies has never been higher in the history of the asset class. Today, I want to share more about the massive global private equity overhang, and its implications for corporate/strategic M&A.

First, a great graphic that essentially tells the whole PE story, globally, in one picture:

(source)

• The global overhang of private equity assets waiting to be sold is now approaching $2 trillion.

• Three-quarters of the blockage is related to PE funds with a vintage between 2005 and 2008.

• 90% of PE funds with a vintage between 2006 and 2008 have yet to return any capital to their LPs.

So there is an outsized supply of companies ready to be sold, to say the least.

But what about demand?

Market conditions are also converging for corporate buyers (the largest and most important channel for private equity exits) to drive strong demand:

• As previously mentioned, corporate balance sheets are stronger than they’ve been in a long time. Cash balances are at all time highs.

• External capital too is more than plentiful, and US markets, in particular, are awash. World financial assets are now nearly 10 times the value of the global output of all goods and services. Global capital has swollen past $600 trillion, tripling over the past two decades.

• Public equity market gains, albeit chiefly in the US, are providing renewed appetite for growth, currency for deals, and a pathway for exits. The Dow and the S&P 500 have both regained pre-meltdown losses and have hit new all-time highs. If sustained, equity market gains will bode well for deal-making; increased M&A activity has always historically followed significant public market gains.

Important elements have thus aligned — flush balance sheets, cheap and available financing, and improved equities markets – to create real demand-side momentum.

Get ready for increased near term corporate/strategic deal-doing. I am confident that all the pieces are in place.

Posted by: Mory Watkins