U.S. Private Equity Deals Drop to Lowest Level Since 3Q 2011
SEATTLE- During the first quarter of 2015, private equity investors completed 634 deals in the U.S. worth $100.7B—a 30 percent decrease in deal count and 26 percent decrease in capital invested from 1Q 2014. Historically, there tends to be a noticeable spike in deal flow during the fourth quarter as PE investors rush to close, oftentimes resulting in a visible drop in activity the following quarter. However, in 4Q 2014 this didn’t happen—instead deal flow plateaued slightly at 858 deals and $128B in capital invested. Coupled with an abnormally slow first quarter, this may signal the first legitimate slowdown in PE deal flow since the 2008 financial crisis.
“Private equity and M&A dealmaking remains highly competitive across the board, driven by a huge amount of available cash and debt funding,” says Senior Director of Analysis, Adley Bowden. “This environment has led to a bit of a pullback in private equity deals, an increased focus on the middle-market and more non-traditional PE transactions. As long as the current environment persist we expect private equity activity to stay in a similar range to the last several quarters as PE firms hunt for value and focus on the growth of their portfolio companies.”
During 1Q 2015, the number of funds closed dropped to 38, the lowest number since 3Q 2010, and a 55 percent decrease from this time last year. While this may be an issue of timing, it could potentially signify overall decline in PE activity. Of the funds raised in 1Q, vehicles under $250M got off to the slowest start. This supports the trend that limited partners’ (LP) loyalties are increasingly aligned with bigger, more established firms, making it difficult for smaller funds to be raised. Relatively speaking, the core- and upper-middle market funds raised performed best, signaling that LPs may be anticipating an abundance of activity in the middle market in the near future. With returns flowing back to LPs from the massive number of exits in 2014—1,000 by our count—it’s likely fundraising will pick up steam as LPs put their returns back to work.
While the pace for exits slowed slightly in 1Q with only 218 exits completed by PE sellers, the $65 B exited indicates another promising year for capital returns to LPs. The number of PE exits via IPO fell to the lowest quarterly number since 3Q 2009, with only five IPOs on the books for 1Q 2015. Corporate acquisition matched previous quarters’ numbers with $44B of the $65B coming from corporate acquisitions. The B2B and healthcare sectors accounted for the majority of these exits. Capital exited through secondary buyouts fell to its lowest level since the start of 2013.
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