Corporate Financing Analysis - PE Exits To Accelerate In H217 - 14 AUG 2017


After a slower-than-expected start to the year for private equity funds looking to sell-down portfolio assets, activity sprung into life and eventually closed the first-half up y-o-y. We note that such a turnaround in fortunes serves to highlight that conditions are moving towards a 'sellers' market' for the asset class for the remainder of 2017, and potentially beyond. With key equity capital markets (ecm) around the world still on a bull run and with acquirers - both PE and private - still flush with cash, a window of opportunity for PE exits appears to be flinging opening. Against such a favourable backdrop, which has seen global exit activity reach USD123.6bn in the first-half, up from a tally of USD109.8bn recorded in H116 ( White & Case data shows), we expect fund managers to make the most of the conditions to move to the end of investment cycles with their assets. In turn, this would allow them to return back money into the hands of the investors that feed them - a move likely to support with future fundraising closes ( see BMI , ' The Exit Window Now Open For PE Funds ' , March 15 2017). After 2016, a year in which exit activity in the global M&A and IPO arenas recorded a decline in combined deal value, falling by 8% and 40% y-o-y, respectively, we highlight that buyout funds have a golden opportunity to spin off their portfolio assets during the remainder of 2017.

A blueprint for doing just that comes in the form of the largest exit year of 2017 to-date: the sale of a minority stake in US clinical trials firm Pharmaceutical Product Development by The Carlyle Group and Hellman & Friedman to sovereign wealth funds (SWFs) Singapore's GIC and the Abu Dhabi Investment Authority (ADIA) for a bumper USD9bn, including debt. With the deal a minority sell-down, that will see the proceeds used for recapitalisaiton purposes, The Carlyle Group and Hellman & Friedman will retain joint control of the firm. While PE funds were forced to hang on to assets for perhaps longer than they might have liked during the aftermath of the global financial crisis, when valuations were low and strategic acquirers were keeping the purse strings pulled tight, that is not necessarily the case anymore: with plenty of deals being made, the median holding period for buyout-backed companies has contracted to a more predictable timeframe once more. Indeed, as Preqin data shows, across 2016 PE firms sold down portfolio units via either the equities arena or a trade sale were on average financial sponsor-backed for 5.2 years, down from an average of 5.3 years for exits made in 2015 and from an average high of 6.1 years recorded as recently as 2014 (the peak in a cycle of six years of an uninterrupted lengthening of average holding periods). We expect to see that timeline shorten further still by 2017 year-end.

On The Up!
First-Half 2017 Vs. 2016 PE Exit Activity by Deal Value, USDbn
Source: White & Case

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