PE backed deal flow up 19 percent

December 2013 | FEATURE | PRIVATE EQUITY

Financier Worldwide Magazine

Private equity (PE) funds have enjoyed a prosperous 2013 so far, according to a new report from research firm Preqin. The number of private equity backed buyout deals increased significantly in the first nine months of the year compared with the same period in 2012.

The aggregate value of PE backed buyout deals so far in 2013 has increased by around 19 percent compared with last year. The overall value of PE-backed buyouts for the first three quarters of 2013 was around $217bn, up from $182bn during the same period in 2012.

North America in particular was a fertile region for PE backed deals. Preqin notes that during the third quarter of 2013, there were 363 such deals announced in the area, valued at $36bn. “Private equity-backed buyout deal flow continues to be encouraging for 2013 and is up 19 percent on the same period in 2012, demonstrating private equity fund managers continue to find good opportunities for investments, despite some concerns that deal flow is decreasing,” said Ignatius Fogarty, Preqin’s head of private equity products. “While the majority of deals continue to occur in North America, Asian private equity deal flow has shown signs of improvement throughout 2013,” he added.

The overall value of European PE-backed deals during the same period was $15bn. The European figure is somewhat concerning when considered alongside the number of deals in the preceding quarter – Q3 saw 50 percent fewer deals in Europe for the second quarter of 2013 when the aggregate sum was $29bn.

The consumer and retail sectors saw the largest proportion of capital investment in Q3, attracting 30 percent of all investment. The industrials sector accounted for 21 percent of all deals completed in Q3.

The US Federal Reserve’s recent decision to delay the ‘tapering’ of its quantitative easing (QE) program has benefited PE firms, since they finance a large portion of their deals with debt. Moreover, it looks increasingly likely that the Federal Reserve will maintain its ultra-loose monetary policy for longer than expected, especially in light of the budget-related standoff which ground many US institutions to a halt in early to mid-October. The decision to delay the tapering of the QE program came as a welcome relief to both the emerging markets and the PE sector alike.

Fundraising

A total of 606 funds closed during the first nine months of 2013, raising a total of $311bn according to Preqin’s data. Of these funds, North American entities accounted for 66 percent, or $57bn, of aggregate capital raised. By way of comparison European funds secured $22bn, while those based in Asia drew just $4bn.

The overall increase in fundraising has been largely driven by activity in North America, where PE funds have raised $195bn in the first three quarters of the year, falling just short of the $197.9bn they raised for the whole of 2012.

Preqin’s data shows that 100 funds principally targeting buyouts raised $10bn during the first three quarters of the year, up from 91 funds raising $67.5bn over the same period during 2012.

However, there was a drop in the number of firms successfully managing to raise funds. Preqin’s data suggests that the number successful closes fell from 686 to 613 during the first three quarters of 2013. “Many investors are increasingly looking to place more capital with larger and more established managers. With a record breaking number of private equity funds currently in the market competing for capital, the remainder of 2013 is set to continue to be highly competitive for fund managers,” said Mr Fogarty.

The first three quarters of 2013 saw distressed PE funds, funds of funds, growth funds, and secondaries funds all raise considerably less money from investors than they did during the same period in 2012. Quarters one to three saw these types of PE funds attract $58.1bn, compared with $77.8bn in the same period last year.

The average size of PE funds closed was $532m during the third quarter, down $164m from the April-June period. In Q3, 179 funds accumulated $87bn, a figure Preqin expects will rise by 10 percent as new information becomes available.

CVC European Equity Partners VI was the largest fund to close during the period, accounting for almost 63 percent of all capital raised by European funds, with €10.5bn secured in the first seven months of 2013. GSO Capital Solutions Fund II, an American distressed debt fund, came in second, raising $5bn.

Richard Summerfield