Market
18.06.2015
By mergers.lv
iStockphoto

The recently published Global Private Equity Report 2015 by Bain & Company, a consultancy, is among the first to offer a comprehensive analysis of the private equity market last year and share their outlook for the year 2015 and beyond.

What have been the main traits in the global and European PE market in 2014 then?

Record year for exits

The recorded 1,250 exits from buyouts exceeded USD 450 billion (EUR 400 billion at current exchange rates) in value thus making 2014 a new record year globally, surpassing the 1,219 transactions and USD 354 billion reported in 2007.

In Europe the volume of buyout-backed exits more than doubled – from USD 85 billion in 2013 to USD 173 billion in 2014.

Abundance of capital

The report even goes as far as calling this phenomenon ”superabundance”. The money available to general partners (GPs) amounted to USD 1.2 trillion, including USD 452 billion for buyouts, at the end of 2014.

It is interesting to note that PE funds have actually raised more funds during the year than they have invested - they started the year with USD 1.1 trillion (of which USD 408 billion were for buyouts) only.

High asset prices

The combination of factors including the limited supply of attractive investment targets, abundance of low cost debt and high valuations of comparable public companies has contributed to the asset prices remaining high

Almost 6,000 active PE funds (including 1,000 buyout funds) globally have been competing for deals not only among themselves but also with cash rich and growth-starved corporate acquirers, thus pushing up the prices for attractive assets that are still in a limited supply.

Long holding periods

One of the legacy effects from the financial crisis has been the longer holding period for investment needed to prepare it for an exit (this has been even more the case for assets acquired before the crisis at extremely high multiples). As a result, more than 60% of exits in 2014 involved companies that had been in the PE portfolio for more than five years, and only 11% were what are being called “quick flips” (having been held by PE for less than three years).

Increasing leverage

The availability of cheap credit has gradually been driving the debt multiples to the pre-crisis levels. Recognising this, the US regulator has even introduced a new guidance for banks not to finance acquisitions where debt to EBITDA ratio exceeds 6.0x.

When looking into the future the report highlights the following factors that are expected to affect and to shape the PE industry in the year 2015 and beyond:

  • The financial assets that were estimated to amount to c. USD 600 trillion in 2010 (and already exceed 10x the global real GDP) are expected to