There are several trends that we are seeing in the private equity space and the signals appear to be somewhat mixed. While fundraising is at record high levels, deal volume is down 11% for the first nine months of the year. Though overall deal volume is down, certain sectors are still generating a lot of interest. PE Exits have also slowed during the quarter.
Fundraising Remains Robust
According to Pitchbook, through July, more than $240bn was raised for North American and European private equity and venture capital funds. Pitchbook believes that 2017 could surpass the $345bn that was raised in 2016. These are the highest levels seen since 2007 when $419bn was raised.
PE Investments are Slowing Down
During the 3rd quarter, private equity firms invested $163.4 billion across 959 PE deals in the US ($401.7 billion in deal value, 2,820 transactions on a YTD basis). Deal volumes are down by more than 10% through the first nine months of the year. The largest PE deal this year was BDT Capital Partners’ $7.16 billion buyout of Panera Bread, significantly smaller than last year’s PE backed dell $67 billion acquisition of EMC. We believe that PE investments have slowed down in 2017 for a couple reasons: price and quality. Median EV/EBITDA multiples remain high, at 10.5x, and PE firms see the number of viable targets lower than normal. That said, PE firms may be pressured to put committed capital put to work given the sizeable cash holdings some may have.
PE Exits Continued to Slow in Third Quarter
During the 3rd quarter, PE exits dropped 20% to $40.8bn across 224 companies compared to 2nd quarter. Through Q3, PE exits fell by 24% compared to last year. This decline was largely due to a decrease in activity by strategic acquirers.
PE firms are growing in size
While PE funding raising is spread across fewer firms, the funds are larger in size. US PE funds raised $62.4 billion in commitments across 58 vehicles in the third quarter with the median fund size increasing to $265 million through 3Q 2017. Apollo Global Management raised the largest fund of $24.7 billion, its ninth flagship fund. Other notable raises include KKR’s $13.9 billion North American PE pool and Silver Lake’s $15 billion raise.
Focus on software
While overall PE activity slowed in 2017, investments in the software sector remain strong. Through the 3rd quarter PE firms invested in 345 software deals totaling $39.5 billion.
Castle Placement is an investment bank (founded in 2009) that raises raise equity and debt capital for companies in a variety of industries from our institutional investor network (>27,000 investors – PE/VC firms, hedge funds, family offices, asset managers, lenders, etc.).