2019 – a record breaking year for US PE

April 2020 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

April 2020 Issue

2019 was another record year for the private equity (PE) industry in the US. According to Pitchbook’s 2019 Annual US PE Breakdown, PE fundraising in the US reached a record $300bn.

Dealmaking was also robust, though it fell short of 2018’s record. Total PE deal activity was down slightly year-on-year to 5133 deals totalling $678bn, from 5345 deals totalling $730.3bn. 2019’s deal activity was impressive given the ongoing geopolitical uncertainty and the threat of major trade wars which persisted throughout the year.

Among the significant deals announced last year were Swedish PE firm EQT Partners’ buyout of Nestle’s skin-health unit for $10bn and Blackstone’s $3bn acquisition of MagicLab.

From a fundraising perspective, 2019 was a landmark year, with over $300bn raised despite a decline in fund count. Following a slightly subdued 2018, 202 funds in the US raised $301.3bn, a year-on-year rise of 52.3 percent, despite a 5.6 percent fall in the total number of funds. PE mega-funds – above $5bn in committed capital – were the driving force, accounting for over half of all capital raised last year, for the first time since 2007. Blackstone Capital Partners VIII and Vista Equity Partners Fund VII raised $26bn and $16bn respectively. Blackstone’s eighth fund is the largest ever recorded, surpassing Apollo Global Management’s most recent flagship buyout fund closed in 2017, which raised $24.6bn, as well as Blackstone’s own $21.7bn 2007 fund. PE mega-funds from TPG Capital, Leonard Green and Veritas also held significant final closes in Q4. Given the funds closed in 2019, Pitchbook predicts that 2020 fundraising will likely experience a modest fall. Despite this, it still expects fundraising to surpass $200bn. In early January, Platinum Equity announced it had closed its fifth flagship fund at $10bn, above its $8bn target.

Tech-focused funds are popular with investors. As of 16 December 2019, North America- and Europe-based tech-focused PE firms raised $68.3bn across 34 funds. Silver Lake Management, Thoma Bravo and Vista Equity Partners were the most prominent tech-focused firms, raising a combined $43.6bn and accounting for nearly half of all tech-focused PE capital raised since 2016. Thoma Bravo closed a $12.6bn fund and Vista a $16bn fund in 2019.

Going forward, Pitchbook expects tech-focused PE fundraising to increase. “It seems clear that LPs want a private market investment option that lets them tap into the growth of the digital economy led by proven managers that can create value and outperformance,” the report notes.

In the US, tech as a proportion of overall PE deal count surpassed 18 percent in 2018 and approached 20 percent as of Q3 2019.

US PE funds are also sitting on record levels of ‘dry powder’. At the end of 2019, the PE and venture capital (VC) industry had $1.45 trillion of cash uninvested – the highest total on record and double the amount just five years ago. Undoubtedly, there is too much capital chasing too few deals, which is driving up deal multiples. According to PitchBook, median PE deal value climbed above $250m for the first time in 2019.

Year-on-year, PE exits fell in 2019. There were 1035 exits valued at $318.2bn, which represented 16.5 percent and 28 percent declines respectively. General partners recorded just 53 exits above $1bn, a steep drop from 95 in 2018. Exits in excess of $1bn accounted for just 42.7 percent of exit value last year, the lowest since 2012.

Richard Summerfield