How Slow is the Summer Slowdown?

Summer is an interesting time for the private capital markets. As most deal makers go on vacation with their families, dealflow usually shrinks and most chatter stops until the kids go back to school. The slowdown creates a little breathing room for everyone to look back at the first half and make predictions for the second half. In that vein, we thought that comparing the first half of 2013 with the same period last year could offer a few insights around what’s to come.

Looking at the overlay of 2012 and 2013 in terms of relative deal flow volumes, we saw that the week over week changes were very similar for both years. In fact, many weeks are almost mirror images. But, after very similar springs, this year saw an earlier cooling off period with fewer pre-summer deals resulting in a much more steady, if not improving, dealflow. Last year, after the traditional summer downturn, we saw deal volumes pick up significantly in early August, a bit sooner than normal. Will the same happen this year or will deals wait until after Labor Day to return?

There seems to be a difference of opinion about when, or if, deals will return. A few weeks ago, Ernst & Young released a report arguing that dealflow is in a six year decline and may not be coming back. While many of the ingredients for solid dealflow are present – like healthy balance sheets and low interest rates – E&Y argues that we’re in a “you go first” environment where everyone is waiting for the deals to start before they do their own deal. In our own first half middle market report, a number of professionals countered that while the tax issues last year contributed to an end of year spike and a slower first half of this year, the next few months could see a return to a more normal environment.

Over the next few weeks, as vacations come to end and dealflow (maybe) returns, we’ll see who is right: optimistic deal makers or pessimistic analysts.