PE Fund Managers Cautious, but Optimistic about Deal Outlook

Amid uncertainty in the global economy, private equity fund managers are expecting another year of limited deal flow in 2012. According to our third annual PErspective private equity study, 70% of fund managers expect to close only two or three deals during the next 12 months. But don’t let those numbers discourage you. They actually represent an uptick from 2011 when nearly half (47%) of fund managers reported closing no new deals and another 19% reported closing only one new deal.

Fund managers are also hopeful they will deploy more capital in the coming year. Twenty-two percent expect to deploy $30 million to $50 million of capital through new deals and add-on acquisitions in the coming year, and another 16% expect to invest $51 million to $100 million. That’s compared to only 10% and 11% of funds that reported investing the same amount, respectively, during the previous 12 months.

Will that capital be directed toward retailers? The answer, it seems, is likely “no.”

When asked what industry private equity professionals see as the greatest opportunity for new investment, manufacturing (28%) and healthcare/biotech (21%) were the top choices. Just 6% of respondents pointed to retail and distribution.

These expectations are consistent with the views of retailers, themselves. Our fall Compass Survey of Retail CFOs found that retailers anticipate more strategic buyouts in 2012. Still, 2011 was not a silent year for retail private equity buyouts. In fact, according to PitchBook, the B2C industry led private equity in 2011, with $33.66 billion worth of PE deals, driven by the Del Monte Foods, J. Crew and B.J.’s Wholesale Club deals. In 2012 we may continue to see a high level of activity, with several analysts suggesting a number of apparel retailers may be attractive options for PE buyouts.

What are your expectations for private equity investment in the retail industry this year?

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