FINspeak

PitchBook in partnership with the AMAA (Alliance of Merger & Acquisition Advisors) recently published a report on the available capital or “dry powder” available for investment by Private Equity. What is surprising from this Overhang Report (delta between funds raised and put to use) is not hitting this record high number, but the 10 year run up to this point where every year with the exception of 2003 and 2007 saw significant year end overhangs which further added to the accumulating available capital (view the report www.pitchbook.com/library.html).

Larger fund sizes, easier credit terms and a rolling pot of available capital enabled PE to make larger buyouts and take bigger bets to chase returns. However, this massive accumulation cannot be attributed to the mega-funds themselves. The mid-market must have burgeoning coffers as well to put this money to use for larger acquisitions correct? Interestingly enough, the answer is surprising. The mega-funds will decrease their target acquisition size taking some opportunity away from the mid-market, a few funds at the higher end of the mid-market will beat the mega-funds at this game since they have always pursued a higher volume of transactions and could potentially make that leap as a larger “player”. What this leaves is a significant portion of the mid-market (and VC community) that has funds they cannot commit, may not have the ability to exist on their fee structure and are unable to raise enough capital to make acquisitions or placements in this more competitive market since new investors would not see a return with such a large amount of uncommitted capital is just waiting to be deployed. You end with up with stranded available investment that will need to be cleared with some mechanism and put to use. I don’t have the most optimal answer to accomplish this task, but it would go a long way towards jumpstarting the current economy.