Hunting for deals with $1 trillion to spend - check the fine print.

Source: Prequin Ltd,  Q4 2017 Fundraising Update.

Source: Prequin Ltd, Q4 2017 Fundraising Update.

The effects of Quantitative Easing (QE) continue to show up in all manner of places.

This time, we find out from Prequin Private Equity Online that there are currently ~3,4874 private capital funds with $1 trillion of uncommitted private capital, hunting for deals.

To add further wax and feathers to this story, the $35 billion Chinese asset manager Hillhouse Capital Management, recently said it will raise a further $6 billion in fresh capital.

This kind of financial freight has serious gravitas, but as stated by Prequin's analyst it will be harder for fund managers to deploy it all.

But that's just the tip of the iceberg.

We have all seen the consequences of oversupply in previous cycles, most notably in the lead up to the GFC. At that time Private Equity (PE) deployments drove unsustainable competition for deals, super-sized deal multiples and unhealthy levels of debt used to leverage (and in many cases dwarf) equity.

In 2018, partial vendors and their advisors considering PE will be best served by carefully assessing factors over and above price. Other factors to consider include deal structure along with the various control mechanisms set out in the Share/Noteholder Agreement.

For carefully considered, priced and structured deals that are executed at the start of an upwards valuation cycle, interim PE can work extremely well.

But get it wrong, and just like a number of notable companies acquired in the lead up to the GFC, partial vendors could find themselves locked into inflexible structures without control, and years away from an IPO or monetisation runway.


NextLevelCorporate delivers independent and transformative corporate advisory and financing solutions to clients looking to reshape their competitive landscapes, in and out of Australia. Our ability to do this comes from ~30 years of sector-specific proprietary intel and the freedom to independently originate and advise on customised Mergers and Acquisitions, Growth Capital and Special Situation solutions.

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