An article was recently published about the decrease in PE activity after 2015, in regards to the number of deals closed as well as the deal values.
A coinciding M&A boom also led to higher valuations at the upper end, as players in more traditional industries sought acquisitive routes to growth. Accordingly, total deal value remained robust but PE dealmakers slowed their pace throughout 2016, responding to valuations, a lack of worthwhile targets, overheated competition or shaky growth prospects in certain arenas.So where does this leave the US PE industry in 2017?
Investors will at the very least maintain their current investing pace, as public market comparables seem to show no sign of slowing anytime soon and many sectors in the US economy are still sound, particularly relative to the global scene.
Last but not least, PE-backed exits should continue at a decent clip, but as the M&A boom cycles downward and IPO prospects remain cloudy, their frequency will gradually decline, or in a moderately more optimistic scenario, flat line.
Full article here. I can understand why an increase in M&A activity led to a decrease in PE, but I would like to know the following:
Where do we see more PE activity/ which PE sectors are doing well right now? Why do we think that M&A will flatline and PE exits will also continue at the same rate? How do you think private equity will do this year?
bump
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LMM-MM firm here. Industrial/manufacturing/old economy. The majority of our deals are bid up to the point of insanity because everyone and their mom has a new fund with cash. We also drive m&a at our portfolio cos heavily.
LMM-MM firm here too -- it's getting to the point where everyone is shocked at where valuations are coming it. We essentially take what we think it should go for and expect it will go for a turn higher, it's ridiculous.
As for the market, you're seeing the most growth in middle market deals as that's where the most opportunities are and (they hope) more reasonable valuations. Large firms are starting funds targeting lower/middle market companies, and seems like every other day a new first-round fund is raised. Think strategies have shifted in response to the above and you're seeing more firms that are 'operationally focused' or look at hairier assets for better value where your return isn't about growth or leverage but though cleaning up the business and improving margins. Industrials are in favor, one sector in particular I'm seeing a lot of is HVAC and we don't know why, one banker said it was probably b/c they're a lot of small companies and it's been a domino effect after the first few sold. Automotive is in decline due to cycle, and building products or anything tied to new construction is viewed as a bit risky b/c everyone is expecting the market to have a little pull back in the next 3 years, but that's what they've been saying every year so who knows. Can't really speak to healthcare, but feel like it's not as busy as it was after Obamacare was inacted. Should probably see a pickup in energy now that oil is @ $60 and holding, it'll start slow and pick up once PE gets comfortable with the industry again.
The tax reform will have an impact on PE deals in 2018 and 2019, though I can't say how large it will be as firms are still figuring it out.
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