A new report from Goldman Sachs Equity Research highlights that M&A activity remains brisk in 2014, but that leveraged buyout sector is apparently moribund. The September 9th report notes that sponsor activity (LBOs) represents just 20% of the total U.S.merger and acquisitions activity for the year to date, nearly tying for the lowest amount of LBO activity in the prior decade.

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As Goldman Sachs analysts Jessica Binder Graham and colleagues point out, to date in 2014 there has been just $3 billion of public-to-private transaction volume, compared to over $80 billion in 2013 and an average of $75 billion in 2004 through 2013. Moreover, there have been no “take-private” deals over $5 billion in 2014 compared to four deals in 2013 and 17 in 2007.

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Why so few LBOs?

Although there is no one reason that M&A activity remains brisk but not LBOs, the GS report suggests one of the primary factors is the relatively high current valuations of most public companies today. The stock market has been on a nearly six-year tear, and PE simply isn’t willing to pay too much. Moreover, corporate buyers often also enjoy the benefits of synergy between the two organizations, so they are frequently willing to pay more than PE firms.

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Binder Graham et al. highlight three reasons LBOS are few and far between right now. “1) Valuation upside – the market’s median multiple is near all-time highs and has outpaced LBO purchase price multiples; 2) EBITDA growth – sales growth is slowing and margins are near peaks, offering less opportunity for substantial operational improvement; and 3) financial engineering – average equity contributions are now 35% (vs. pre-crisis average of closer to 30%), implying less scope to lever up.”

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Ex-US deals seem to be the focus for private equity

The GS report also notes that most PE firms today seem to be focusing on global, that is, ex-U.S., deals. According to the Goldman analysts, “Global deals appear a bigger focus, with both KKR & Co. L.P. (NYSE:KKR) and The Blackstone Group L.P. (NYSE:BX) having stating that 50% or more of their recent investments have been outside of the United States. Partnering with non-PE firms also appears to be a new trend for large deals this cycle.”

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Market pullback likely catalyst for LBO activity

Binder Graham and colleagues argue that a decent pullback in the market appears to be the most likely catalyst to drive new LBO activity. Given that PE buyout funds currently hold more than $450 billion in dry powder (70% raised in the last three years), a pickup in LBO activity is highly probable if stock prices just fall enough for more deals to make economic sense.