Private Equity Volume Slips Again

The volume of U.S. private equity deals continued its recent slide in the first quarter amid rising prices for companies, increased competition from corporate buyers and a drying up of acquisition targets.

While the number and total value of private equity deals worldwide rose during the quarter, U.S. deals slipped to 173 acquisitions worth $30.7 billion, according to financial data provider Dealogic. That was down from 174 acquisitions worth $30.8 billion in the year-earlier period.

It was the third straight quarter with a year-to-year decline in the number of deals, which hit a recent peak of 265 in the second quarter of last year, and the second straight decline in deal value.

Global private equity fees paid to investment banks also dropped in the first quarter, falling 19% to $3.1 billion compared with the year-ago period, Dealogic said.

The drop in U.S. private equity deal flow and the lower fees point to a lull in the leveraged buyout market despite excitement generated on Wall Street by the buyout industry.

“Europe is much more attractive right now. There are only so many decent [U.S.] companies. It’s hard to find something that is undervalued and available,” said an investment banker who works with private equity firms that wish to remain anonymous.

Indeed, U.S. buyout firms have set their sights abroad for cheaper and more abundant targets. Last year they bought several large U.S. companies and paid top dollar for many of them.

But because buyout firms’ recent success has helped them raise more money, many bankers and analysts believe that despite an early-year slowdown, there is much more to be spent in private deals both in the United States and overseas.

Private equity firms buy companies or take controlling positions in them using part cash and mainly debt to finance the deals.

Big-name private equity deals in 2005 included buyouts of SunGard Data Systems Inc., Neiman Marcus Group Inc. and Toys R Us Inc., which fueled the largest surge in private equity deal volume since 2000.

But throughout the year, buyout firms paid higher and higher prices, running counter to the industry’s style of scooping up undervalued businesses and selling them later for a premium.