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Private equity executives expect slowed deal flow in early 2010

The majority of private equity executives expect economic conditions to keep deal activity and debt availability relatively low until the end of 2010, according to a survey by KPMG.

Some 55 per cent of executives surveyed at the Dow Jones Private Equity Analyst Conference in New York said deal flow will remain low as buyers and sellers grapple with the effects of the economy, financing and other market issues.

Only 15 per cent of the respondents said they expected good quality deals of all sizes and sectors during the coming year, the KPMG survey found.

"Uncertainty continues to shackle the psyche of the PE industry," says Shawn Hessing, national lead partner for KPMG’s US private equity group. "With valuation down and the cost of financing up, buyers and sellers are finding it difficult to get to common ground although we are seeing some signs of progress."

Asked for the biggest issues facing the private-equity industry, the respondents cited: the lack of lending (30 per cent); the lack of exits (26 per cent); the debt coming due on deals in 2011 and 2012 (24 per cent); the pullback by limited partners (13 per cent); and regulation (seven per cent).

According to the survey, 58 per cent of respondents said IPO demand will not return until 2011 at the earliest, and 24 per cent said they expect companies will avoid the IPO route as alternative sources of funding, such as growth capital, become more popular. Thirty-seven per cent of respondents said they expect there will be a demand for public company offerings in 2010, and six per cent said it was too hard to predict in this economy.

Asked which sectors would provide the best returns from distressed transactions, 44 per cent said real estate, 34 per cent pointed to financial services, 14 per cent said such returns would come from consumer goods, six per cent said retail and two per cent said media.

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