Nervousness In Private Equity-land

By Thomas Heath


There was much nervousness last night at a downtown D.C. shindig for the private equity world, hosted by Dan Primack, a blogger at peHub.com, which write about the private equity world. The reception was held at Fado Irish Pub and Restaurant near the Verizon Center.

It was fun and there was a big crowd, probably more than 100. The event raised $1,500 for Fisher House, which runs homes away from home for military families so they can be with loved ones during hospitalizations.

The regional sponsors for the event were Dechert LLP and Square 1 Bank.

I talked to a bunch of dealmakers from two of Washington's most prominent mid-size private equity companies, Bethesda-based American Capital Strategies and D.C.-based Allied Capital. There were others from The Halifax Group, Coller Capital and Robert L. Johnson's private equity and real estate investment companies.

These guys asked me to keep their names out of the blog because they aren't public spokesmen and because they were not representing the views of their employers.

"It's grim," said one. "There are no deals being done."

Because there is no cash (or cheap financing) for buying companies these dealmakers are spending their time helping manage the companies they already own.

They worry that if the downturn and credit crisis extend through 2009, there will be layoffs. Already, firms are taking steps to conserve cash. American Capital cut its dividend earlier this week.

"No one knows where this ends," said one deal guy. "The company may be modeling on how to run the business if it ends in three months, or six months or longer. We don't know."

If the economy continues to deteriorate, they worry that the companies that they are helping manage will suffer.

Some said co-workers are talking about parking themselves at the U.S. Treasury and riding out the recession - or whatever the economy turns out to do. But they didn't seem too excited about gong to work for the government.

"We have great jobs with a lot of autonomy," said one guy. "I don't want to work for the government."

All of these deal makers, and they were all men, are business school graduates who will probably land on their feet. None of them were older than 35.

Andrei Vorobiev, who had been a visiting research professor at the University of Kentucky, was down on the private equity business model. He said it can't exist without cheap credit and said the big and small firms will have to disappear or change the business model.

One director at a local PE firm who works in real estate said he is cautious but positive in his outlook.

"We're glad 2008 is over and hopeful for 2009," he said. "There is money out there, but it's really expensive."

Robert Haile, 31, had just moved to Washington from New York, where he worked for private equity. He is just back from a three-month honeymoon that took him to Panama, Ecuador and the Galapagos.

"There are so many financing guys who are out of work," said Haile, who was on his honeymoon during the entire meltdown. "The PE firms are sitting tight, trying to ride this out. It's going to be a tough deal market for awhile," he said.

On the bright side, valuations keep coming down so the assets private equity firm covet are becoming more attractive.

By Dan Beyers  |  November 12, 2008; 12:23 PM ET  | Category:  Value Added
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I am not surprised there was a lot of nervousness if more than 100 attendees only raised $1500 for a very worthy cause. The math says volumes about where our economy is and where the private equity world thinks we are headed.

Posted by: Cooper26 | November 13, 2008 9:25 PM

Actually, in the PEHub tradition, the funds were raised only through the sale of tickets, $10 a pop. So $1500 means that 150 tickets were sold (although fewer people showed up.) Otherwise PE partners I spoke with were almost as arrogant as they always are...

Posted by: anvor | November 14, 2008 8:34 PM

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