Private equity industry has seen its fair share of both bad and good exits, with holding times telling a lot about the investments’ success. But the financial crisis of 2008 caused plenty of headaches for many firms and funds’ holding times have seen an increase. But could a string of big initial public offerings of the summer from pre-crisis investment show the industry is ready to cash in again?
Increase of Hold Times
Our recent report on Preqin’s research of private equity zombie funds highlights the troubles private equity funds are faced with. Cashing out of the pre-2008 investment has not been easy and many funds have been holding on to investment for longer than they were hoping to.
Preqin’s research also shows how the average holding time for investments stood at 4.2 years before the markets went down. But the holding times have since seen an increase, as private equity firms are currently holding on to a company on average for five to nine years.
The traditional view has often been that private equity should turn around company fortunes in a quick space of time. The current increase in holding times have gotten some investors and managers concerned.
Don Vollum, managing partner at Vista Ridge Capital Partners, said in the weekend’s Business Insider how he ‘hates long hold times’. “That’s not to say that I want to see managers rush a company to market before it’s ready, but rather that the point of ‘private equity’ is to transform a company in a relatively short, fixed amount of time – three to five years, typically,” Vollum said in the interview.
Big Deals in July
But there might be some good news for fund managers, as July witnessed a number of big initial public offering filings (IPO). IPOs are often a great route for private equity exit and the mega deals could well give more hope for other ‘long-holds’.
The big deals include the filings of Univision, the Spanish-language broadcaster, First Data, the technology company, and Albertsons, the US supermarket chain. For Albertsons’ private equity owners, Cerberus, the filing could mark the start of an exit from an investment they made all the way back in 2006.
Furthermore, private equity firm KKR has been holding on to First Data for over seven years now, with the company struggling to provide much for the firm. The company has not recorded an annual profit since 2010, so exit from the initial $27 billion buyout would be paramount for KKR.
Finally, the Univision IPO could provide a rather lucrative exit for its private equity owners, which include firms like TPG Capital and Madison Dearborn Partners. The firms have been involved with the broadcaster since 2007, although they have shed off some their shares in previous deals.
Mood to Cash In
The industry’s big players would definitely want to get rid off some of these ‘long-hold’ assets. Despite this, the industry is changing and longer holding times might well be the future for private equity.
But it seems firms are still trying to get rid off investments within a shorter time and the mood for cashing in might be on the rise. According to Asia Asset Management, recent data shows the second-quarter of the year has shown a boom in exit volumes. Furthermore, Preqin’s data has also shows all-year asset sales volumes globally increased by 30% last year.
It remains to be seen whether other big ‘long-hold’ deals are announced this year. While you wait, you can check out private equity deals at DealMarket.