Exit activity nosedives for PE firms in 1Q

Private equity exit activity in the US has been trending down in recent years, but not by much. Firms completed more than 1,000 exits every year from 2012 to 2018, and the total value of those exits topped $350 billion in each of the past five full years.

During the first three months of 2019, however, exit activity fell off a cliff. Firms exited just 164 companies at a combined value of $41.1 billion, according to our 1Q 2019 US PE Breakdown, representing QoQ decreases of 41.2% and 57.3%, respectively. Here’s a full look at the past decade’s worth of data:

Surely one factor in the dealmaking decline is that just one PE-backed company conducted an IPO in the US during 1Q 2019, again per the PE Breakdown. The biggest reason for the dry spell would seem to be the US government shutdown that began last December and stretched into January, which left the SEC unable to review and approve IPO registration documents.

Since that was a one-off event more than a concrete change in the markets, it seems unlikely PE-backed IPO activity will remain so depressed for the rest of the year. A pair of notable companies with PE support have already gone public in 2Q: Tradeweb Markets, a financial marketplace operator backed by Blackstone, raised $1.1 billion in an early April offering. And Brigham Minerals, an acquirer of US mineral rights, raised $261 million in a debut a few weeks later; Warburg Pincus, Yorktown Partners and Pine Brook Partners are among its backers.

With such a substantial decline in exit activity during 1Q, there are of course other causes. The shutdown occurred after several weeks of market volatility during the end of 2018, which may have led to a lull in dealmaking as investors waited for things to stabilize. Since buyouts can often take several months to close, a dip in deal talks during 4Q 2018 would likely be reflected in lower figures for 1Q 2019. And in general, several firms are holding onto their successful investments for longer, which inherently leads to fewer exits.

PitchBook analysts expect exit activity to bounce back during the rest of 2019. But after such a slow start, it would require quite a rebound for this year’s totals to come close to those of recent history.

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