The private equity business experienced some dramatic ups and downs in 2011. 

The first half of the year was marked by strong deal activity and good news on exits, as the IPO market seemed quite hospitable. But in the second half of the year, the economy and the European crisis put the brakes on the momentum.

So what's in store for the private equity industry in 2012? Ernst & Young's Transaction Advisory Services is predicting a surge in deal activity.

"Robust cash positions, strengthening balance sheets and improved credit markets, combined with a mounting pressure for growth in a low organic growth environment, will result in a sizable uptick in transactions over the next 12 months," it says.

More companies are looking to divestitures and spin-offs. In the U.S., the number of divestitures increased 3 percent to 2,453. Ernst & Young expects the increases to accelerate, as 30 percent of domestic companies expect to execute a divestiture in the next 12 months.

The industry may be rebounding a bit too late for one industry lion: Milton Berlinsky, who has stepped down as head of Goldman Sachs' financial sponsors practice. He oversaw Goldman Sachs' rise to prominence in the industry, navigating some tough conflicts between the firm's own funds and his clients. Bloomberg notes that Goldman Sachs slipped a bit from its top spot in fees from private equity firms last year.

For more:
- here's the E&Y report
- here's a Bloomberg article on Berlinsky

Related articles:
Big PE deals in trouble   
Private equity portfolios holding up