As our economy slipped into recession, private equity investors retreated and sat on the sidelines. As a result, the wizards of Wall Street find themselves in a tenuous position. Without their capital deployed, they cannot generate the management fees required to sustain revenue. They are like caged tigers waiting for their prey to enter the den.

The average multiple in smaller transactions (less than $250 Million) fell in 2008 to 6.9 times EBITA from 8.7 in 2007. Yet, business owners waiting out the recession may be eager to pull equity out of their businesses, even though the stock market offers a poor investment alternative.  In Q4 of 2009, mid-market transactions spiked 77% from Q4 of 2008, reflecting a changing mood and the need for investors to see their money put to work.

Private equity firms currently sit on a projected $609 Billion in un-invested capital. The S&P alone has an aggregate $1.4 Trillion in cash. This may seem unintuitive to many, but any business that is growing and has positive cash flow is in a tenable position to attract investment from financial or strategic buyers.

May the sellers beware that tigers seek the slaughter and are highly selective about which businesses they acquire and under what terms. Those organizations that performed well in the downturn present less risk and are desirous to those seeking safe harbor from economic fluctuations.  One would imagine that private equity fund managers, with more time on their hands, may be even more difficult than under normal conditions. Almost always in control of senior debt, equity managers are notorious for buying organizations, moving out management and strangling corporate cultures.

In the ten years starting in 1997, the U.S. share of global public equity securities fell from 49% to 34%.  The turmoil in the European and Asian markets may be the impetus for more investment in the US of A. For those entrepreneurs that have run their businesses prudently, who offer growth and profit, the M&A market may offer significant opportunity in the years to come.