James Gelfer December 17, 2013
was in private equity (PE) and venture capital (VC), PitchBook is closing out 2013 with a two-week series of articles examining the trends, stories and data that will be remembered by the industry for years to come. From Twitter’s IPO and surging stock markets to the Dell and Heinz deals, PitchBook tracked it all this year. And now we’re putting it all back in focus with our 2013 in Review.
PitchBook published more than 40 reports on the private equity and venture capital industries in 2013, so we thought it would be fun to take a look back at some of the most interesting graphs and data points that were uncovered in these publications.
In my opinion, the most intriguing chart PitchBook produced this year comes from one of our most recent publications, the 4Q 2013 PE Company Inventory Report. When examining private equity deals by deal type, we found that after converging for several years, the number of add-on deals will surpass the number of platform buyouts for the first time ever in 2013. In addition, there has been a prolonged uptick in the proportion of growth/expansion deals.
The 2013 Annual Private Equity Breakdown revealed a number of interesting developments in the industries where PE firms have been focusing their attention. Business products & services (B2B) has gone through some ups and downs but has consistently retained its position as the most active space for private equity investment. Consumer products and services (B2C), on the other hand, has seen its steady decline as a proportion of PE deal flow continue in 2013.
Information technology (IT) saw a rapid uptick in PE investment from 2008 to 2012 and accounted for an even larger proportion of overall capital invested in 2013. PE capital invested in the IT industry reached its second-highest level ever in 2013, thanks in large part to the $24.9 billion Dell buyout.
PE fundraising has been notoriously difficult in the years since the financial crisis, but the climate finally began to change in 2013. Firms are raising funds more quickly than in recent years and having more success hitting their targets. Furthermore, 2013 saw the return of mega-funds, which had declined significantly since the heyday of the mid-2000s.
As is the case on the PE side, venture capital fundraising has proven to be a challenge for all but the best-performing VC firms in recent years. But unlike private equity, we have yet to see a rebound in activity. And while fundraising has been mostly flat since the financial crisis, VC firms have largely maintained their pace of investment, which has resulted in capital invested outpacing capital raised for six consecutive years.
PitchBook’s inaugural VC Valuations & Trends Report is the most comprehensive analysis of pre-money valuations and deal terms ever produced, incorporating data from more than 11,000 VC rounds. Venture capital valuations across all stages have been soaring since the financial crisis and are now at their highest levels in the last decade .
In addition to valuation trends, several other interesting developments emerged in the report, including the fact that term sheets are becoming much more entrepreneur-friendly in terms of liquidation preferences and other key series terms. In addition, VCs across all stages of financing are acquiring lower percentages of their portfolio companies than in years past.
Investors have been searching for more reliable metrics to gauge the performance of alternative investments, as IRR can easily be manipulated and cash multiples make it difficult to make an apples-to-apples comparison against other asset classes. Earlier this year, PitchBook began incorporating public market equivalent (PME) calculations into its quarterly benchmarking report. While the calculations behind PME can admittedly be a little esoteric, the bottom line is that PME applies cash flows from alternative investment vehicles (PE and VC funds, in our case) to a public index to see the relative performance over a given period.
Be sure to return to the PitchBook Blog or read the PitchBook Newsletter in the coming days for additional 2013 in Review content.