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As usual, private equity funds are getting creative in dealing with the challenging times. In fact, there are signs of a pick-up in the space (according to an in-depth piece in TheDeal).
Let's face it, private equity was a big engine of fees for Wall Street. For example, last year Goldman Sachs (NYSE: GS) snagged $1.5 billion in advisory fees for such deals.
But, as of now, the fee machine has come to a near halt. In fact, investment banking fees from private equity sponsors has plunged a staggering 77% in the first quarter of this year.
So, what to do? Well, interestingly enough, private equity firms are thinking small. That is, the deal size is likely to range from $1 billion to $2 billion. Such deals are much easier to pull off when there is a credit squeeze.
What's more, Wall Street will look at advisory assignments for sovereign wealth funds, which are starting to take on private-equity style of deals. Oh, and we'll see lots of growth in dealmaking in Asia and the Middle East.
All in all, these are positives. However, it really doesn't overcome the highly lucrative fees for private equity transactions.
Basically, to see bigger buyout activity, there will need to be a return of collateralized loan obligations (CLOs). Unfortunately, it's something that hasn't happened so far -- and is not likely to return until banks repair their balance sheets and get more comfortable taking on increased risk.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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