Private equity has had a tough time buying assets in the past couple of years. It is not that there have been no assets to buy, nor that PE funds can't get financing. The trouble is, for every potential acquisition, sponsors face two sets of rivals: public equity investors and corporate trade buyers. Both have been fighting fit.
Time after time, high public equity valuations and spendthrift corporate buyers have led to private equity players not getting a look-in in major auction processes.
A typical example was Philips Lighting, an unglamorous industrial asset of the kind that in some years would have been a shoo-in for private equity. Parent Koninklijke Philips ran a clear dual track process, but private buyers of all kinds seemed so far off the pace that the CEO declared a month before the IPO that it was most likely to go that way.
This was after a first quarter when stock markets had been battered and IPO issuance was sharply down. And although the deal was priced only three eighths of the way up its range and achieved a €3bn market cap, much less than the €4bn-€6bn that had been bandied about beforehand, that was still 12.5 times earnings.
Anheuser-Busch InBev had to sell SABMiller's beer brands Peroni and Grolsch as it swallowed the whole company, and while that was not a natural IPO asset, it could have tempted private equity. Yet the deal went to Japanese brewer Asahi, for €2.55bn, or 30 times Ebit.
Asian trade buyers have been particularly active in Europe in the past year, often paying enterprise value to Ebitda multiples of 10 to 15.
Private equity has stacks of money to invest, but at multiples like these, funds just have not seen a way to buy companies and still make the kind of 15% to 20%-plus returns they seek, especially when economic growth in Europe is only peeping above zero.
It has become increasingly clear that private equity has not been waiting for the economy to improve, so much as for valuations to fall.
Brexit may be the opportunity they have been waiting for. Already, the Stoxx 600 index is down 8.6%. The FTSE 250, representing mid-cap UK, has fallen 11%.
And that is in sterling terms. Each pound of UK equity now only costs $1.33, about 7% less than its average this year, and some forecasts have the pound falling to $1.30 or $1.20.
A lot of the falls have been in sectors like banks, airlines and property that private equity may not fancy. Consumer goods and services companies, where there are more opportunities for growth and improving operating models, have actually risen in some cases.
But the Brexit turmoil will hobble the IPO market. No flotations will be launched till September, and even then, it will be a brave issuer who goes first. Investors are going to want juicy discounts and will only go for straightforward equity stories, especially those with yield, or clear track records of growth. Preferably both.
Sellers with companies to divest may well find it easier and safer to go for a private equity buyer than wait and see if stockmarkets get a spring back in their step.
Corporate trade buyers will still be there, but at a time of deep uncertainty about Europe's future, PLC boards may be more risk-averse than private equity firms.
On the evidence of this week, leveraged finance markets are still operating, and able to finance buyouts if they do emerge — though spreads will not be thin.
Ultimately, no one knows what a Brexit will entail, and what disruption and destabilisation it could cause to the rest of Europe. Wild currency moves and sudden share sell-offs are likely to keep recurring over the next couple of years.
But when mainstream investors are frightened, private equity executives scent blood. If they can't find some profitable bargains in the next 12 months, they shouldn't be in the business. The deals will be risky, but expect plenty of funds to have a go.