The state of the private equity (PE) market has been a source of considerable interest since central banks started to raise the interest rates on debt that funds the industry’s growth.
Whether this would translate into slower activity for the sector was a major worry for sector observers going into this year. EY's first-quarter private equity analysis has confirmed the industry has put the brakes on significantly, cutting the number of listings and buyouts.
Private equity houses managed $92bn (£73.bn) of total deals in the first quarter, compared with $240bn this time last year. There was a marked difference between January’s $12bn total and the $62bn of deals the industry completed in March – the biggest single deal was to take Japanese electronics giant Toshiba private for $16.2bn.
Valuations recovered over the course of the first quarter, which may have hastened the speed at which deals were completed before the end of March. The cheaper price of many tech shares ensured that these were the most popular with PE houses and over 50 per cent of all deals were for technology companies.
However, one area that has simply collapsed are exits, with IPO shuttered on both sides of the Atlantic, the global PE industry only managed $54.5bn of planned exits, down a painful 77 per cent on this time last year.
However, EY noted that PE firms tend to prosper at times of uncertain macro-economic circumstances.
The consultant puts this down to the ability of firms to attract investor money when alternative forms of finance dry up because of difficult liquidity conditions. The withdrawal of traditional PE funds has left the market open for private debt funds, themselves often run by PE companies, to supply credit for an increasing share of the reported deals.
This approach relies on the industry being able to tap a broader range of investors – renowned US PE house Bain Capital notes a trend towards structuring PE funds to be marketed to wealthy individuals. According to Bain, the rationale for this is simple as private investors currently hold 50 per cent of global assets under management, but only 16 per cent of specialist funds. In other words, PE sees an untapped source of capital.
