Though private equity firms are loaded with capital and sky-high valuations of targets are declining, experts say the favorable market won’t necessarily lead to an overabundance of private equity transactions in 2016 because of the industry’s characteristically selective approach to deal-making.
“Private equity tends to be somewhat careful in terms of looking for established businesses that have cash flow,” said Howard Berkower, a partner with the corporate practice at McCarter & English LLP.
He likened firms to baseball players who have good eyes and are willing to take pitches that appear to be off the plate rather than simply swinging at every pitch that goes by in hopes of maybe hitting a home run.
“I do think private equity firms have to be careful in terms of tracking what they’re investing in,” he said. “They try to avoid striking out.”
Meanwhile, the reality is that there just aren’t as many top notch assets out there as there were in the past, and the ones that do exist don’t have flashing neon signs that scream “buy me!”
“Low-hanging fruit has become more and more difficult to find,” Berkower noted.