Private equity funds hungry for deals in 2011: Ernst & Young

This year's M&A activity to be led by private equity and emerging market deals

TORONTO, Jan. 25 /CNW/ - With record-breaking cash in company coffers and the return of market confidence, more deal activity and private equity (PE) exits are on the horizon for 2011, according to Ernst & Young. M&A deals will be less about unloading underperforming assets and more about executing strategic deals in order for companies to achieve their long-term growth strategies.

"In Canada, private equity's comeback in 2010 proved its ability to adapt to a changing economic environment," said Joe Telebar, Transactions Advisory Services Partner at Ernst & Young. "This year, we expect to see the return of targeted deal activity as the tailwinds of 2010 propel leading companies back into the market."

Despite a few bumps in the road, PE led M&A recovery in 2010. While M&A emerging-market activity increased in volume by 6% and value by 46% globally, companies continued to move cautiously against the backdrop of an uncertain economic future. PE firms announced 38 acquisitions valued at US$1705.98 million as of December 2010, a value increase of 27% from the previous year. PE global deal volume is also up by 10%, with value up over 90%, according to Dealogic.

"In Canada, the M&A outlook is optimistic as renewed confidence replaces the old concerns that prevented companies from entering the market," said Telebar. "Now, as some of PE's highest profile buyouts from 2006 and 2007 are on the 'auction block,' we anticipate an increase in PE-backed listings."

M&A is on the long-term corporate agenda, with 54% of global companies planning to do deals within the next two years. Canada is no exception. Exits from portfolio companies will become the new focus as companies face a friendlier selling environment. The momentum of secondary transactions will also continue into 2011 as firms look to sell businesses held longer than the average holding period.

Improved cash and credit conditions will continue to fuel PE firm deal activity and increase buyouts of larger transaction sizes. Direct investing, currently a small percentage of total institutional investing, could also gain popularity as large deals are completed. Should the Canadian model, with a 20-year cycle and virtually no capital outflows, deliver attractive returns, it could lead other large institutional investors to form their own funds.

About Ernst & Young
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