1. PE funds produced another impressive surge in investment value in 2018, capping the strongest five-year stretch in the industry’s history. Fierce competition and rising asset prices continued to constrain deal count (i.e. the number of transactions fell by -13%, to 2,936 worldwide) with total buyout value jumped +10% to $582bn supported by a strong growth of public-to-private transactions which globally reached their highest value since the previous take-private boom in 2006–07.
2. Despite the steady pace of investment, PE dry powder has been on the rise since 2012 and hit a record high of $2tr at year-end 2018 across all fund types and $695bn for buyouts alone. The build-up of excess capital is putting pressure on PE firms to find deals, but the good news is that buyout firms hold 67% of their dry powder in funds raised over the last two years, meaning the recent deal cycle is clearing out the older capital and replacing it with new.
3. The stiff competition and high multiples (i.e. 10.9x was the average EV multiple for North American buyouts in 2018) that made it challenging to find deals in 2018 also made it a great time to exit. With 1,146 transactions valued at $378bn, exit activity came in a smidgen lower than in 2017, but the total was still a strong contributor to a historic five-year stretch that has produced unprecedented distributions for investors. There was clearly some urgency on the part of GPs to sell assets, as signs of economic weakness pile up. The median holding period for buyouts fell last year to 4.5 years, after edging down slowly from a peak of 5.9 years in 2014. PE funds continued to attract an impressive amount of capital in 2018, although the pace fell off from 2017’s record-breaking performance. GPs raised $714bn from investors during the year (i.e. the third-largest amount ever) bringing the total since 2014 to $3.7tr. LPs remain committed to what has been their best-performing asset class (i.e. 90% of all institutional investors say they intend to maintain or increase their PE allocations).
4. After several years of heavy stock market volatility around the world, buyout funds continued to outperform public equity markets in all major regions, over both short and long time horizons. At the same time, buyout returns in the current cycle have not been as robust as they were in the previous cycle. As the overall PE industry has matured and become more competitive, the outsize returns that GPs could once earn on a large pool of undervalued assets are harder to find. Yet, top-performing funds still exceed the industry average by a relatively wide margin.
- Global PE report 2019 – Bain & Company https://www.bain.com/contentassets/2792a2cbcdcf4e94acfddc077a85c5ea/bain_report_private_equity_report_2019.pdf