Dry Powder to Drive Second Half of 2010

With unprecedented levels of cash on the balance sheets of corporate America and dry powder in the private equity world, family owned businesses and PE management teams are likely to sell en masse before the tax increases solidify.

Yet, according to PricewaterhouseCoopers (PwC), deal volume was down for the first half of 2010. For the first half of 2010, lenders acted much more cautiously, making many wonder if credit is available. The current Private Equity overhang, $850 billion, represents 54% of all capital committed between 2004 and 2009, which leads us to believe that capital is indeed available and waiting to be deployed. There is plenty of cash for PE to make deals happen even with potential time bombs created by law makers. While the mega deals may garner the most press, the median deal size is $107 million, demonstrating that smaller and mid-market deals actually dominate the landscape and provide tremendous opportunities for their buyers.

Now is a great time to execute so-called mergers of productivity to capture scale and cost savings. Industrial products is one of the many industries ripe for divestiture. As reported yesterday, aerospace is also ripe for consolidation as the major players’ growth is stifled by fragmented suppliers who are constrained by size and investment capabilities. He who rolls up the industry reaps the bounty.