Private equity is continuing to attract investor capital in 2017, despite increasingly tough conditions for buyouts. With new fundraising contributing to an already record amount of dry powder, PE firms are facing a competitive dealmaking landscape and rising valuations for targets. With an interesting market, experts disagree on the future of PE exit activity.
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Toppan Vintage question: What do you expect to see in the way of private equity exit activity over the next 12 months? Leading deal experts weigh in...
When asked about PE exit activity, a plurality of respondents were optimistic – 48% believe it will increase in the next 12 months. However, nearly a third (32%) disagree and feel exits will, in fact, decrease, indicating that there is far from a consensus on the subject among dealmakers.
PE exits hit an all-time peak in 2014, when there were 2,258 sales valued at a total of US$533.9bn. At the time, many funds were selling assets they had acquired at deflated valuations following the 2008-9 financial crisis. After 2014, the combined value of PE exits declined in each of the following two years, although the number of exits rose to above 2,300 in both 2015 and 2016.
Secondary buyouts, deals between two PE firms, have also been on the rise. Their number reached an all-time high globally of 652 in 2016, with aggregate value of US$101bn.
One major PE exit from June 2017 serves as an example of several currents running through the sector in general: the US$5.3bn sale of Norwegian software company Visma by KKR and Cinven Partners to a consortium led by HgCapital.
First, HgCapital came together with three other PE firms to make the purchase – a consortium-based approach that is becoming increasingly commonplace as funds aim to do bigger deals. Second, the PE sellers found PE buyers, meaning a secondary buyout, instead of finding a strategic acquirer for the asset. And third, Cinven Partners actually retained a minority stake in Visma – another tactic increasingly employed by PE firms as they attempt to boost their ultimate return on an investment.
A partner at a PE firm with over 45 active investments predicted fewer exits over the coming year due to the latter trend of funds wanting to extend their ownership period. “Most of the major PE firms are using longterm strategies to generate greater shareholder value and return on capital,” he said. “This will mean less exit activity over the next 12 months.”