Private equity firms are flush these days. Surging company valuations have made finding smart investments more tricky, however—and that has created a bottleneck for big buyouts, according to a recent report.

But having clients with more money than they know what to do with isn't creating problems for private equity lawyers, judging by interviews with practitioners at a handful of firms. In fact, some say the environment has created opportunities.

While overall M&A activity in the U.S. has seen a slight uptick of 1% in value compared to 2018, private equity investment over the first three quarters of 2019 is down 25%, The Wall Street Journal found. Citing data from Preqin, the Journal said the total PE deal value through the end of October was $155.2 billion, the lowest total since 2014.

The Preqin data also showed that unspent money dedicated to U.S. buyouts by PE firms has hit $771.5 billion, more than double the 2014 amount. One reason, according to the Journal: The strength of U.S. equity markets and strong stock performances by U.S. companies have made buyouts more expensive and more difficult.

If that's worrying private equity lawyers, they're not admitting it.

"As far as the slowdown in deals, we are not experiencing that in our practice," said David Leinwand, a New York-based M&A partner at Cleary Gottlieb Steen & Hamilton. "November was one of our busiest months in a long time."

Leinwand noted that the strategies used in identifying and pursuing deals have changed somewhat this year due to high valuations and strong market conditions, but if anything that has created more work for his practice.

He cited the work they are doing with clients around alternative strategies, such as helping entrepreneurs purchase smaller companies to build out portfolio companies and create a platform, positioning the financial sponsor as more of a strategic investor for deals down the road.

This, Leinwand said, can help his clients avoid what is causing a lot of high valuations: auctions.

But these auctions are nothing new, and PE firms have been battling them for several years.

"There are significant challenges for new investment and acquisition," he said. "It is a superb market for sellers."

Kimberly Smith, Chicago-based co-head of the private equity practice at Katten Muchin Rosenman, said the practice there has not seen a slowdown either.

"Quite the opposite," she said. "We are as busy as we have been in the last few years, and not only are we not seeing a decline in activity, but we have actively accelerated throughout 2019."

Smith's practice focuses on midmarket transactions, and while there may have been fewer megadeals in 2019, activity in her area has been as strong as ever, she said.

"When we look at the middle-market practice, we know it is vulnerable," she said. "But it is the same thing that has been happening for several years now. Markets, the economy, fallout from international political decisions, tariffs. But if people don't see some sort of macro-change that is eminent, they are going to go about business as usual. The high valuations have not been an impediment. You just need to work harder and smarter."

While both Smith and Leinwand acknowledged that high company valuations can be a hurdle, they said that simply forces law firms and potential buyers to be more creative in how they approach a potential asset.

"Of course, where we are seeing the highest valuations is where companies are trading at auctions," Smith said. "But those deals are still getting done."

Smith pointed out that even at an inflated cost, if the buyer sees potential and has a strategy for growth, a deal often makes sense.

Marni Lerner, head of Simpson Thacher & Bartlett's private equity mergers and acquisitions practice, said that while she has felt a slight slowing of overall M&A activity, that was not the case for PE.

"I think the market is still healthy and people are still wanting to do deals," she said. "I haven't really seen things change as much as the [Wall Street Journal] article suggests.

Lerner said that it has been a "seller's market" for quite some time, and that this year is not significantly different.

Phil Richter, co-head of the M&A practice at Fried, Frank, Harris, Shriver & Jacobson, agrees.

"The articles and reports about private equity firms sitting on lots of dry powder, that has been a consistent theme for quite a number of years," he said. "Every time you get one of those roundups for the M&A world, there is that discussion."

Richter said that while he has noticed a slowdown in PE firms purchasing public companies, the overall deal flow seems to be tracking as it has the previous few years.

"I'm not sure how they come up with those numbers and whether they are totally accurate," Richter said, referring to the reported 25% drop in value of aggregate U.S. buyouts by PE firms from 2018-2019. "I haven't seen it impact our practice. PE firms are still buying and selling companies."

Leinwand said that although he does have private equity clients that are sitting on some cash and have under-deployed commitments, large deals are still happening.

He cited his involvement in the recent $6 billion acquisition of technology distributor Tech Data by Apollo Global Management as evidence that bigger deals are still in the works.

"You have to pay, but it is worth it," Smith said. "You have to bite the bullet on the price right now, but it can still be a good investment."

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