Private equity deals have not witnessed as strong a start to 2017 as many would have hoped. The latest data highlights decrease in buyout deal activity, adding fuel to concerns deal-making in the industry is slowing down.
What to expect from Q1?
ValueWalk reports deal volume to stand at 970 transactions in the first quarter of 2017. The deals would amount to an aggregate $53 billion, which would be a slight decrease in the 2016 levels.
The deal volume is also dropping from the previous quarter, during which over 1,000 financing deals were made with the deal value amounting to $89 billion. Although deal volume and value were less, the number of large-cap financings was able to add the most value to the aggregate. Just 7% of the buyout deals were worth over $1 billion, yet these deals accounted for 57% of the aggregate deal value. The largest buyout deal during the first quarter was Blackstone’s acquisition of Aon Corporation’s Employee Benefits Outsourcing Unit. The deal was worth $4.8 billion.
However, Preqin believes the aggregate to increase once the full information on the first quarter becomes available. Christopher Elvin, head of private equity products, attributed the slowdown in the market to managers’ struggle “to navigate a market of intense competition and high valuations”.
Elvin went on to point out how the outlook for the rest of the year might not be as gloomy. In 2016, the first quarter was the slowest of the year and so managers “may be hoping for a similar pattern in deal flow this year, especially as the majority of firms stated that they intended to up their investment over the course of 2017,” he said.
In terms of regions, North America witnessed more buyout transactions than Europe. However, both regions had a similar aggregate value of investment – In North America, it was $25 billion and in Europe, $20 billion. The largest deals of the quarter were made over European assets.
Asia had a disappointing first quarter in 2016 and this seems to have improved in 2017. Buyout value amounted to around $7 billion in the first quarter, which is higher than at any point during 2016. The biggest deal in the region was the decision by Carlyle Capital, CITIC Capital and CITIC Group to purchase McDonald’s outlets in China and Hong Kong.
In terms of industry, the Business Services sector saw the most buyout-backed deals, followed by Consumer Discretionary and Industrials.
Drop in exit environment
Aside from slow buyout deal activity, the private equity backed exit environment also witnessed declines. The data shows the combined value of exits declined from the $93 billion in the previous quarter to $48 billion Q1. Overall, there were nearly 400 exits in the first months of 2017.
Out of the exits, trade sales represented the most common method, with IPOs increasing their prevalence. The largest private equity buyout-backed exit involved One Corporation selling USI Holdings Corporation to KKR and CDPQ for $4.3 billion.
For more information, check out Preqin’s website for the full report.