PE momentum continues in Q3

December 2017 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

December 2017 Issue

Private equity backed buyouts maintained their momentum in the third quarter of 2017, according to new data from Preqin.

In its ‘Q3 2017 buyout deals and exits’ report, Preqin notes that the PE space saw 953 deals worth an aggregate $92bn in the third quarter, down slightly from the 1047 deals worth an aggregate $93bn in the second quarter. When added with first and second quarter activity, 2017 remains on course to record aggregate deal values similar to 2016, despite deal value in Q1 being the lowest since 2012.

“Not only did the private equity-backed buyout industry match the deal activity of Q2, aggregate deal value also increased by $37bn from Q1,” said Christopher Elvin, head of private equity products at Preqin. “Assuming that the industry is able to maintain its momentum into the last quarter of the year, annual deal activity in 2017 should be on par with the levels seen the year before.”

North America saw the most buyout deal activity, with 513 deals announced worth $36bn. But the region also recorded the largest decrease in deal activity, which fell from $62bn in Q2. Europe saw 350 deals worth $20bn, and Asia recorded 39 deals worth $32bn. The increase in Asian deal activity was the most sizable jump, up from $9bn in Q2 2017 on the back of two prominent deals – the Global Logistic Properties Limited deal worth $12bn, and the Toshiba Memory Corporation deal worth $18bn. The Toshiba deal is the largest Asia-focused buyout deal ever.

“Europe continues to see a slowdown in buyout deal activity in the quarter, but North America saw the steepest decline,” added Mr Elvin. “By contrast, with the Toshiba Memory Corporation buyout deal announced this quarter worth close to $18bn, Asia buyout deal activity saw a sharp spike in deal value, although the number of deals decreased slightly.”

Though public-to-private deals represented only 1 percent of financings announced in the third quarter, they represented 26 percent of aggregate deal value.

Industrials saw the largest number of deals at 22 percent and 17 percent of aggregate deal value. Information technology represented the largest proportion of aggregate deal value at 35 percent from 19 percent of total deals. Healthcare saw 15 percent of the number of deals for 13 percent aggregate value.

PE exits fell for the fifth consecutive quarter. There were 381 exits worth $65bn during Q3. North America again saw the bulk of exit activity – 182 with an aggregate value of $35bn. Europe saw 152 exits worth $20bn. More than half of all exits – 59 percent of deals – were trade sales, which accounted for 68 percent of the total exit value for the quarter. Indeed, the largest PE-backed exit during the quarter was the trade sale of portfolio company Lightower by CCIC for $7.1bn.

PE fundraising declined slightly in Q3, though Preqin believes that the industry remains on track for a record year.

Q3 2017 saw a total of 181 private equity funds reach a final close, securing an aggregate $95bn in institutional capital. Compared to Q2, 75 fewer funds reached a final close and $42bn less in aggregate capital was raised. Year-on-year comparisons, however, were a mixed bag. While Q3 2017 saw 51 fewer funds hold a final close, it also saw $28bn more capital raised. First-time funds accounted for 24 percent of funds closed in Q3 2017, but just 8 percent of the aggregate capital raised.

According to Preqin, fundraising activity is often subdued in Q3 as managers usually wait until the end of the year to close funds. With this in mind, Preqin predicts that 2017 will likely surpass 2016 and set a new post-financial crisis fundraising record, potentially reaching 2007’s record high of $415bn.

Richard Summerfield