Private Equity Sours Along With U.S. Economy

Nov 11 2008 | 12:39pm ET

The U.S. private equity industry is suffering along with the rest of U.S. economy. According to new findings by research firm PitchBook Data, deal flow declined 34% in the first three quarters and inflows dropped by 57% from $354.5 billion to $152.3 billion from the same period last year.

Despite the industry’s dramatic declines from 2007, the first three quarters of 2008 remained relatively strong compared to historical levels, according to the study. The amount invested through the third quarter of 2008, $152.3 billion, was the third-highest on record, behind the record-breaking 2007 and the $160 billion invested during the same period in 2006.

The median size of p.e. deals this year is a more conservative $66 million, compared to $76 million in 2007. The median size of leveraged buyout deals dropped more significantly, from $106.5 million in 2007 to $82 million, a 23% decline.

“There is no disputing that the current economic environment is hindering private equity deal flow as credit for LBOs has become increasingly difficult to secure,” said John Gabbert, CEO of PitchBook. “The private equity industry is going through a correction as it returns to pre-bubble transaction levels, valuations and deal terms.”

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