The Un-Deal of the Century

Liquidity goes down, prices go down – it isn’t a direct relationship, but it’s pretty close. The standard line is, if buyers have restricted access to capital, then only cash buyers are really in the market. So unless there are a large number of potential cash buyers, your pool of buyers dries up . . .

That has been the standard line.

And now, we’re entering a new era. After a pile of ridiculous deals fueled by cheap capital, capital is tight again. During the time of ridiculous deals, more disciplined, long term buyers sat on the sidelines, waiting patiently . . . some waiting much longer than they could have anticipated….

And now they are on the hunt. The unintended consequence is that the Private Equity firms must disperse the cash or they must give it back. The family offices can sit. So we see another wave of ridiculous deals as PE firms push to use all of the allocated capital. If you can wait them out, on average the excess will purge by 2012, but if you want to get your money working again, think sooner rather than later. Deals before 2011 are likely to be more favorable than those in 2011.