Allen Wagner September 18, 2013
PitchBook recently interviewed Jeffrey Bunder, global private equity leader at EY, for the PitchBook 2H 2013 Private Equity Exits Report. Bunder provides key insights into recent exit activity and touches on reasons for a pull-back in secondary buyouts, the strength of IPOs and global PE exit trends.
Q: Exit activity started weak in 2013 but is slowly accelerating; do you see exits continuing to improve through the rest of the year?
A: The first quarter was among the slowest for PE exits since mid-2009, likely the result of the pull forward of exits in 4Q 2012, in advance of the 2013 tax rate increases. Corporates stepped back, the IPO window was essentially closed and even secondary deals took a breather. However, we’ve seen momentum build over the last several months, and we think that barring any external shocks to the market, activity will be strong through the balance of the year as the U.S. economy continues to expand. The reopening of the IPO window should help to offset any lingering sluggishness in the M&A market, and provide companies with some optionality around their exit route.
From a trend perspective, private equity firms are very focused on exits right now. The overhang of companies in the portfolio and the need to divest to return capital to limited partners is one of the most pressing issues facing PE firms. While the deal market is not as robust as private equity funds would like, it is an increasingly improving market and receptive to performing businesses. As a result, we’re seeing PE firms put more resources and focus into their exit planning and execution and increasingly adopting a dual-track strategy to incorporate the IPO option.
Secondary buyouts accounted for 45% of PE exits in 2012 but fell to 37% in 1H 2013. Is there a particular reason why we are seeing a smaller proportion of secondary buyouts?
Secondary buyouts have been an increasingly important exit route over the last several years, and we expect it will remain a significant “buyer” in the PE-backed company market. While the amount of dry powder that PE firms hold has declined from its peak a couple of years ago, private equity firms nonetheless have hundreds of billions in unspent capital. Secondary transactions represent an …
For the full interview, download the PitchBook 2H 2013 Private Equity Exits Report.
Jeff Bunder is EY’s global private equity leader and responsible for driving the delivery of a comprehensive service model, including transaction, audit, tax and advisory services, to private equity funds and their portfolio companies globally. Jeff has more than 25 years of experience leading due diligence engagements for both private equity and corporate acquirers.