The hoped-for rebound in private equity exits failed to materialize in the third quarter, as PE firms sold companies and other holdings at one of the lowest volumes since the global financial crisis.
The value of PE exits announced in Q3 fell 40.7% from the prior quarter to $44.1 billion, according to PitchBook’s latest US PE Breakdown, dashing hopes of longer-term recovery for PE liquidity as Q2’s boost in exit value proved short-lived.
Total exit value tallied lower than any quarter—other than the lockdown doldrums of Q2 2020—since 2008, according to the report.
New PE dealmaking also declined, though to a lesser extent. By the end of Q3, the industry’s exit-to-investment ratio stood at 0.37x, indicating nearly three PE acquisitions for every exit.
That metric is down considerably from 0.48x in 2021 when firms were making just two acquisitions for every exit.
The contrast between higher deal value and fallen deal count in PE firms’ exits to corporate and strategic buyers demonstrates which of those buyers are still in the market.
In Q3, corporations purchased the fewest PE-backed companies on record, despite strategic sales continuing to represent the most common exit route for PE-backed companies. Meanwhile, median deal value surged to $414 million, up from a 2021 record of $297 million, per the report. Buyers’ cash on hand and bond issuance were key for these exits.
Deals like Thales Group’s acquisition of Thoma Bravo‘s Imperva for $3.6 billion in July and Campbell Soup’s purchase of Sovos Brands from Advent International for roughly $2.7 billion in August helped bolster that historic median exit value for strategics.
And the picture isn’t rosy for exit activity through the remainder of 2023. L Catterton-backed Birkenstock‘s IPO Oct. 11—which ended with the worst day-one performance of a $1 billion-plus company in two years—threatened to shut the IPO window, which had barely cracked open in Q3.
Sentiment was already shaky before the German sandal-maker’s debut. In Europe, Triton-backed Renk, a German automotive transmission manufacturer, postponed its public offering in the final hours Oct. 6, and days later, Reuters reported that Bain Capital would put off an IPO for airline Virgin Australia until 2024.
Still, 19 PE-backed companies had filed S-1s with the SEC or were otherwise showing interest in going public at the close of Q3.
If exit volume doesn’t surge soon, the industry faces a looming maturity wall of piled-up assets that could impact fund performance and frustrate LPs.
Read more: Q3 2023 US PE Breakdown
Featured image by Justin Sullivan/Getty Images
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