5. Rebound in deal activity
PitchBook had predicted earlier in the year that private equity deal flow would improve throughout the course of the year, and sure enough, investing is up. The third quarter’s 489 deals totaling $87 billion of invested capital set new highs for 2013.
4. Add-ons have climbed above the 50% mark
Add-ons as a portion of buyouts have climbed above the 50% mark this year, and in 3Q they represented a record 55% of all buyouts. There really isn’t a single reason driving this, but instead a number of factors, such as less competition for smaller companies, the continued evolution of private equity toward more concentration on operations and growth, as well as the ability to quickly put money to work and add value to existing portfolio companies through these deals.
3. Investment at the industry level is changing
The B2B and B2C industries are seeing a decrease in deal activity, while the IT and healthcare industries are picking up. Within the consumer space, there is an interesting trend away from consumer durables and toward consumer non-durables.
2. Fundraising at multiyear high
Private equity fundraising has regained its mojo, with PE firms having already closed on $126 billion through the first three quarters of the year. Private equity investors are on track to register their best fundraising year since 2009, and we are seeing indications that things are up across the board—average fund size has increased for the third straight year to breach $1 billion, time to close a fund has dropped to 10 months, and funds at both the $5 billion+ and sub-$100 million levels are seeing more success than they have since the crash.
1. Q4 2013 Outlook
The general M&A environment is warming up, as shown by some recent large transactions, such as Microsoft’s acquisition of Nokia or the Verizon-Vodafone deal. Debt continues to be very accessible for most PE deals, and deal pipelines and sourcing should continue to normalize. Lastly, there is a real need now for funds raised in 2007 and 2008 to put the rest of their dry powder to work before it expires.