"Despite the many challenges facing private equity, it is important to remember that the market is cyclical and change is constant," said Harris Smith, Managing Partner, Private Equity at Grant Thornton. "We've just ended a period of unrealistic multiples, so while liquidity opportunities exist, use of funds will be scrutinized. Still, corporate and strategic buyers with clean balance sheets and capital will become active in this market."

"There's going to be a flood of exits. People can't wait for the lofty multiples of 2007. They need the cash. Cash triumphs multiples," says Stephen McGee, National Practice Leader of Corporate Finance at Grant Thornton. "A lot of business owners had unrealistic expectations of sales multiples and when they never came, they didn't get out. These sellers have learned their lesson the hard way."

As for fundraising, the precipitous decline in investments returns, coupled with the troubled economy and liquidity issues, left potential investors anxious about investing in private equity funds. Despite this concern, investors have committed funds, albeit at lower levels than in the past, and these investments will likely generate significant returns over the next several years. Limited partners with capital to invest will reap the rewards of owning companies that benefit from a recovering and growing economy.

One strategy gaining in popularity is to buy a minority stake in businesses to provide partial liquidity to the owner and growth or working capital to the business.  By limiting the amount of capital committed, many private equity groups don't need a lender to finance the transaction.

"A minority investor can help shore up the balance sheet by providing capital and deleveraging the company," says McGee. "It also allows a seller the ability to gain some liquidity without totally cashing out in a down market."

In the end, the private equity industry has learned some difficult lessons during this recession. In the future, there will be fewer private equity funds, greater governmental oversight, stricter equity requirements and deal values will be lower than they were during the boom. The private equity industry will not be as flush as it was before the recession, but going forward, the authors of the report believe it should be healthier and more resilient.

To download a copy of "Private Equity in the Post-Boom Era: What's Next?" click HERE.