Overhang or Hangover?

According to data released today by PitchBook, private equity firms were sitting on $477 billion in “dry powder” as of September 30, 20010.  In the trade, this is referred to as a capital “overhang.”  Most of this was raised in 2007-2009, as illustrated below:

PE Overhang 09/2010

This helps explain the many phone calls from private equity firms to Arena Capital Advisors looking for leads on companies they might acquire.

Or are they just hung over?  With easy and cheap credit, private equity firm bought nearly everything in sight in 2006 and 2007, paying seemingly any price.  There are a few, like the characters in the movie Hangover, who seem to be trying to reconstruct the events that left them in a mess, before doing any more damage.  Now that Hangover Part II is out, let’s keep an eye on private equity firms who need to deploy their dry powder to justify their existence and see if history repeats itself.

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