By Freya Berry
LONDON, March 28 (Reuters) - Buyout firms are finding itharder to take part in mergers and acquisitions as the lure ofstronger equity markets persuades more funds seeking to exitassets to try their luck with a public share sale or turn tocash-rich corporate buyers.
Private equity-backed mergers and acquisitions (M&A) fell byalmost a third to $55.2 billion from a year ago, Thomson Reutersquarterly data showed on Friday.
European private equity firms accounted for 8 percent of M&Adeals in the year to date, down from 10 percent from the sameperiod last year and the lowest since 2011, although the valueof private equity-backed deals did rise in the region.
"The bottom line is that in many sectors private equity isstruggling to compete with the public markets," said JamesSimpson, Head of Sponsor M&A at UBS. "Assets that wouldnaturally have come to private equity are going to IPO."
The MSCI World Price Index surged 24 percentlast year. That has brought a rash of companies to market asthey seek to capitalise on buoyant public interest, limiting thedeals available for buyout firms.
Private equity firms are also grappling with asset priceinflation.
Valuations have risen, partly due to a scarcity of assets,because of companies turning to IPOs, but also due to a growingamount of undeployed fund capital which leaves private equityfunds paying out more as they hunt for ways to spend cash.
A report by Bain & Company this month found that undeployedcapital, or dry powder, hit $1 trillion at the end of 2013,pushed up by investors seeking returns in a world of lowinterest rates.
"Multiples have gone up," Simpson said. "You have toacclimatise to paying bigger prices, and that takes a bit oftime."
As well as expensive assets, funds are also shying away fromcompetition with huge corporate cashpiles built up since thefinancial crisis.
Last year, GlaxoSmithKline scrapped a plan to sellits drinks businesses Lucozade and Ribena in an auction whichwould have included private equity firms when Japan's SuntoryBeverage & Food muscled in.
"Whilst (investors) would continue to say this is afantastic environment in which to exit businesses, it's actuallystill proving to be a challenging environment in which to deploynew capital," said Alasdair Warren, head of European FinancialSponsors Group at Goldman Sachs.
"The IPO markets are so strong and the multiples are sohigh, that it is very difficult for sponsors to compete."
But despite the squeeze, private equity firms are confidentthat the rush to IPO will not last forever.
"It is likely that the IPO markets will remain open for sometime but how long it will last is hard to tell," said LionelAssant, Senior Managing Director and European Head of PrivateEquity at Blackstone.
"Public markets rightly demand a proven management team anda clear strategy for growth from any company floating."
Goldman Sachs led the global rankings for M&A advisorbanks with a 46.3 percent market share, while JP Morgan was top for European deals with a 32.4 percent market share, thedata showed.
There have been 271 deals in Europe so far, an increase of6.7 percent year-on-year. But the value of transactionsincluding net debt has soared 24 percent to $12.9 billion overthe same period, the data showed. (Editing by Elaine Hardcastle)
Glaxosmithkline (GSK)