Activity in the private equity sector has increase significantly since 2010, follow a low point in 2009 as the full effects of the financial crisis made themselves felt across the globe. In 2015 total deal value in the segment hit $786 billion and total deal volume reached a peak of more than 22,000 transactions. Deal value in 2015 came closest to the peak that appeared just prior to the financial crisis, when deal value surpassed a trillion dollars in a single year.
The dip in activity in 2016, as invested value fell to $716 billion and total volume to 17,000, is, according to the firm, the result of two key factors affecting the wider industry. The first is that the number of private equity managers has continued its increase, up 3% on 2015, with growth of 2.3% during the previous five-year period. The increase in entrants has increased competition for targets, which has in turn seen the median EBITDA multiple on buyout deals rise from 8.1 times in 2015 to about 9.3 today. The second is that the number of quality targets, including startups, too has receded. The firm’s analysis finds that the number of stocks trending below the then-current buyout multiple has fallen from 68% in 2008 to 25% in 2016.
While the number of deals have decreased on the back of competition and a lack of quality targets, PE firms remain well funded for deal activity, raising around $300 billion in 2016, up 0.7% on the year previous. Fundraising has remained relatively easy for companies with the global economy still awash with low cost money. The industry also has a shadow component, in which additional large amounts of capital is tied up – one estimate by Triago forecasts the value at $188 billion in 2016, around $27 billion more than in the year previous.
The recent boom in funds, as well as a period of a glut in quality targets, has resulted in the assets under management in the industry rapidly expanding. In 2016, the total reached almost $2.5 trillion in PE, growing 8.5% on the previous twelve months, and with a CAGR of 6.8% between 2010 and 2015. While acquisitions are noted as the primary factor in driving growth within the sector; capital gains too played a role, as assets appreciated in value.
North America remains the largest market for almost all segments in the PE sphere, with $827 billion of the total $1.4 trillion in assets held in buy-outs, while venture capital holds $294 billion in assets of the total of $524 billion in assets. Europe has a much smaller segment of the venture capital pie, at $70 billion of the total, while in the buyout segment PE firms hold around $469 billion in investments in the region. The growth of assets was particularly marked in the rest of the world, which saw $192 billion in growth, compared to $89 billion and $34 billion in North America and Europe respectively.