Private equity investments slow in the first quarter

Private equity firms have been holding back from investing the capital they collected over the past two years and waiting until the credit markets open up and valuations adjust.

That’s according to Pitchbook Data, which published private equity statistics for the first quarter of 2009, showing that investments, the number of deals and the size of deals have all slowed down or shrunk from previous quarters.

“It’s incredibly hard to get deals done these days, and there’s a general reluctance in an environment where there’s so much uncertainty to actually close on deals,” John Gabbert, chief executive and founder of Pitchbook, said in an interview. “It’s not just the lack of availability of credit, but also the pipeline wasn’t being built in the fourth quarter. People were sitting on their hands in the fourth quarter.

According to Pitchbook, 188 investments were completed in the first quarter of 2009, compared to 279 in the fourth quarter last year and 440 in the third quarter. Investment activity has fallen by 68 percent this year, compared to the first quarter of 2008. The investments were valued at a total of $12.8 billion, compared to investment totals of $52.7 billion in the first quarter last year and $177 billion during the fourth quarter of 2007.

About 82 percent of the deals done in the first quarter were below $250 million and the median deal amount declined from $61 million in 2008 to only $25 million this quarter. Private equity investors are focusing more on minority investments and acquisitions of mid-market companies, according to the report.

Despite the slowdown, private equity firms are out “kicking the tires” looking for deals, Gabbert said, which is different from the fourth quarter last year.

“People are hustling more these days looking for deals,” Gabbert said.

Private equity is moving back into its more traditional role, which is to invest in quality, mid-market companies that might not make headlines.

“How quickly we lose perspective, things are off so much from their high because we don’t have these mega-deals,” Gabbert said. “I think because of the mega-deals that were getting done, we lost perspective that the core of private equity is mid-market stuff. The $75 million or $450 million company you’ve never heard of in the mid-West, that’s where private equity lives, but it got on the front page with big companies like Chrysler. It’s the top-end that kind of imploded.”