DealZone

Crystal ball: PE active in finance

January 5, 2009

Crystal ballHaving largely held off from picking up cheap financial services assets last year, private equity firms will boost their buying as low valuations make assets in the sector too attractive to pass up, a new report predicts.

The increased interest will come as these firms look for ways to  use funds raised in the last two years and regulators further loosen restrictions on ownership of banks, independent advisory firm Freeman & Co projects in its annual summary on transactions. Buyout shops have about $600 billion to work with.

Private equity tested the financial sector waters last year – and sometimes got burned. But they have continued to look at the sector with interest. Private equity firms put in $23 billion in 84 financial services deals last year, down 69 percent from 2007, Freeman said.

In one of the first deals to be announced this year, a group of private investors, including JC Flowers, agreed to take the failed IndyMac bank off regulators hands.

Freeman says private equity will launch a barrage of distressed debt funds to take advantage of historically low-priced corporate debt. After a dismal year for the financial sector, there are plenty of assets on the block. Large financial companies are seen dumping non-core assets and broker-dealers and exchanges will be looking to consolidate, Freeman said in its report.

(Photo credit: Lee Jae-won, Reuters)

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