Momentum 2014 Middle-Market Private Equity Outlook
A CohnReznick LLP Report
FEBRUARY 2014

Table of Contents

Today’s Private Equity Business Environment.................1 Critical Issues Facing Private Equity in 2014...................6 Private Equity Due Diligence Focus................................24 The Road Ahead..................................................................29

A CohnReznick Report

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Preface
The private equity (PE) industry is well-positioned for an optimistic 2014. After five challenging years, there were a number of positive developments for the industry in 2013, including a rebound in fundraising and a record $120 billion returned to investors in private equity.

mo • men • tum

noun: the impetus gained by a moving object
Overall, 2013 will be remembered as a solid year for private equity. Although the year started off slowly, activity picked up considerably in the second half, particularly in the world of exits. The fourth quarter of 2013 was one of the strongest quarters on record for PE exits, attributable largely to a robust IPO market. The key topic that must be considered in projecting the industry’s outlook for 2014 is whether it can build upon this momentum, or whether the industry’s capital overhang and competition for quality deals will prove too great a resistive force. While we’ll analyze the industry in its broadest sense, our focus is decidedly on the outlook for middle-market private equity firms―those firms with assets under management between $100 million and $5 billion. Lacking the resources and capital reserves of the private equity industry titans, middle market private equity better reflect whether industry momentum is building or waning. We start by examining last year’s industry activity and transactions. While overall investment dollars soared, deal making was increasingly difficult as the