More broadly, slowing exit activity is having an impact on the middle-market company inventory. The percentage of PE-backed companies held for more than five years shot up to 40% in 1H 2017, a big jump from the 32% that were that old in the 2016 inventory. That’s also the largest percentage we’ve recorded in our dataset. Without another surge in exit activity like the one we saw in 2014-2016, that could pose a liquidity issue for middle-market investors. If the rising trend of “upward sells” holds, we expect to see that percentage creep down over time. With exits via M&A and IPO on a downward trend, however, we don’t anticipate that strategic acquirers or the public markets will provide significant outlets for aging portfolios. A PE industry weighed down by dry powder is more likely to step up to the plate.
To get the full 2Q 2017 US PE Middle Market Report, click here.
Note: This column was previously published in The Lead Left.