Dec. 18, 2013
Analyst: Private Equity Flush with Cash and Looking to Spend
The arrival of the 2013 New Year, and the higher capital gains taxes that accompanied the calendar change, provoked a flurry of merger and acquisition activity in the waning days of 2012. But those higher taxes won’t likely slow dealmaking in the metals supply chain in the years to come.
So says Vince Pappalardo, the featured speaker at the December regional meeting of the Association of Steel Distributors in Chicago. The investment banker for financial analysis firm Stout Risius Ross believes there are factors at work that will offset some of the tax headwinds.
For starters, “valuations went up this year because there weren’t as many people in the market. There is a certain level of supply and demand, and a lot of supply got pulled forward at the end of last year,” he said.
Additionally, there is a substantial amount of capital in the private equity markets looking for a home. Private equity firms have more than $348 billion in overhang.
“They raised that money about 5-6 years ago, and they only have 5-6 years to spend it. They’re all looking for deals. Private equity guys are paying outrageous amounts. You’ll see some really big multiples,” Pappalardo said.
Furthermore, the environment for acquisitions has been improved by a changing attitude at the banks, which are more amenable to financing deals due to the better economic conditions.
“Improved financial markets have provided both strategic and financial buyers with additional capital to complete acquisitions,” he said. “There continues to be significant pent-up demand for high-quality acquisition targets and a general imbalance in transaction volume—more buyers than sellers.”
For Pappalardo’s take on the major end markets for steel, see the January 2014 issue of Metal Center News.