Secondary Buyouts Make 3Q Comeback, PitchBook Data Show
September 30, 2013
Private equity firms exited more companies via secondary buyouts in the third quarter, as investors increasingly look to each other to pass off their portfolio companies, according to PE exits data released today by PitchBook.
PE firms completed 124 exits totaling $21.1 billion in 3Q 2013, of which 56 and $6.62 billion were secondary buyouts—both quarterly highs for the year. Though corporate acquisitions led the way with 60 exits, soaring valuations may be putting a crimp on corporate acquirers’ budgets and they may be unwilling to commit the capital required to buy PE-backed companies in the coming quarters. In addition, uninspiring performances from PE-backed IPOs in the second quarter—when 15 companies went public—may have also caused PE firms to shun the public markets in 3Q, when just eight PE-backed companies had an IPO.
Secondary buyouts have made a comeback after two-straight quarters of less-than-stellar exit counts. / Source: PitchBook Data
“The spike in activity driven by the tax law changes late last year continues to affect the market, “ said Adley Bowden, PitchBook’s director of research. “[But] the resurgence of secondary buyouts and level of activity this past quarter shows that the effects are finally diminishing, setting us up for another busy fourth quarter.”
After comprising more than 50% of PE exits in 4Q 2012 (when a record 230 PE-backed companies were sold or went public), secondary buyouts fell to just 31.8% of exit flow in the second quarter as IPOs and corporate acquisitions saw solid growth. But as PitchBook’s recent PE Exits Report notes, the market dynamics that led to a surge in secondary buyouts from 2009 to 2012 (it’s only in the first half of 2013 we saw a dip)—such as expiring dry powder and aging portfolio companies—are still in place. As Bowden alluded to, a fourth quarter surge in secondary exits—and exits in general—is not out of the question.
Today’s 3Q 2013 exit data from PitchBook also showed that while the number of exits remained roughly on par with the second quarter (126 in 2Q, 124 in 3Q), capital exited dropped nearly 45% from $37.5 billion to $21.1 billion. This is largely thanks to a 54% drop in capital exited from corporate acquisitions, which was disproportional to the comparatively tame 15.5% decline in the number of corporate acquisitions from 2Q to 3Q.
Breaking third quarter exits down by industry, B2B led the way with 40 exits while the B2C industry saw 27. But the three largest exits, all corporate acquisitions, belonged to industries that don’t usually register high on PE firms’ radar. Longview Timber (forestry), Softlayer Technologies (software) and NetSpend (financial services) combined to sell for $6.05 billion (Longview making up $2.65 billion and Softlayer $2 billion each) to corporate giants Weyerhaeuser, IBM and Total System Services, respectively.
For PitchBook’s take on 3Q 2013 venture capital exits data, click here.