The international private equity market in 2018 continued to execute deals, source exits and raise capital at a historic five year pace, according to the analysis completed by Bain & Company in their 2019 Global Private Equity Report.
Limited Partners continued to be positive about injecting the market with new capital in an environment with depressed returns in many asset classes.
Although, the picture isn’t all rosy.
Throughout this past year competition was fierce, driving deal multiples to noteworthy highs as a degree of nervousness crept in over the impact of what is widely considered to be a looming economic downturn. The report concluded that those concerns affected decision makers at all stages of the deal process, and did act as a modest handbrake on even greater levels of deal activity.
Private equity firms invested record amounts of capital, forcing them to be comfortable with a new level of discomfort when investing; this lead to the most effective GPs reassessing their targets and adopting a meticulous focus on a wide range of issues as part of their diligence process, whilst at the same time creating contingency plans for an unfavourable economic climate in the future.
The escalation of asset prices and last year’s competition caused a limited deal count; which saw the number of individual transactions decrease by 13% to 2,936 worldwide, but total buyout value jumped 10% to $582 billion (including add-on deals). Those results led to the strongest five-year period in the history of private equity.
During 2018 exit activity was slightly lower than in 2017, producing record distributions for investors across 1,146 exits, valued at $378 billion.
Across the regions, exit value has been steadily growing, with the Asia-Pacific market witnessing a significant upturn in 2018 as a result of a number of large exits in China and India.
The US and Europe benefited from a number of big deals, one in particular came from Golden Gate Capital, Bain Capital, GIC, Insight Venture Partners and Elliott Management, which saw the largest exit in the US when the group sold BMC Software to KKR for $8.3 billion.
PE exits in the local Australian market have been slower than past years, when assessed by aggregate value of exits completed. H1 2018 saw the completion of $3.1 billion of exits, while 2017 recorded $8.1billion in total, down from 2016 highs of $8.6 billion. A significant trade sale exit for 2017 was the sale of Alinta Energy by TPG Capital to Chow Tai Fook Enterprises for more than $4 billion in March 2017*.
From a fundraising perspective, the global push that has seen more institutional capital move into private markets strategies continued, albeit at a somewhat less frenetic pace than seen in 2017. In 2018 more than $714 billion in new commitments were raised from investors – the third-largest amount on record.
In 2017 we saw some of the largest funds ever raised, with the top three funds having gathered an impressive $57 billion in capital. In comparison to 2017, even though the rise of ‘megafunds’ was not as prominent, the single biggest fund raised was Carlyle Partners Fund VIII, amassing $18.6 billion – an impressive result.
Australia showed a promising start in H1 2018 with $5.4 billion in commitments being secured by ten funds (as at September 2018), this aggregate capital figure has not been seen since the previous highs of 2008*.
Investor appetite for private equity remains strong, and it’s easy to see why. LPs have been cash flow positive on their PE positions for the past eight years, with the asset class continuing to outperform others.
The outlook appears bright, with market analysts believing the good times for private equity will continue. A recent Preqin survey recorded that over 90% of LP respondents wanted to maintain or increase their percentage allocations – which signals a positive outlook for managers who can continue to deliver consistent outperformance for their investors.
For all of the latest investment trends across private capital in the local market, be sure to look at the Australian Investment Council’s 2019 industry activity yearbook, which will be released in early May 2019.
* Australian Investment Council Yearbook 2018