Pitchbook has released its Q2 2013 private equity conditions report. The report covers investment trends by deal size, industry, and region. Overall, as measured by the number of deals and size of deals, PE deal making slowed down in the first quarter of 2013.
The number of deals declined by 26 percent, from 500 in the first quarter of 2012 to 355 in the first quarter of 2013. The decline comes off a fairly strong fourth quarter, where deals, at 564, were the highest since the fourth quarter of 2010.
In dollar terms, the recent figures almost represent a show of caution, reversing the four year general improvement in the private equity deal flow. The $52 million count represents the lowest investment figure since the economy was slowly recovering from the recession in the fourth quarter of 2009.
Private Equity Deal Making Also Slowed According to Virtually Every Industry
The largest year-over-year decline from 2012 Q1 to 2013 Q1 occurred in the Information Technology industry, down about 71 percent from Q4 of 2012. The 74 percent decline represents a drop from a strong 2012 deal making year for the industry, comprising approximately $535 million in U.S. deals. The softening in the Information Technology industry is interesting given the leading indicator nature of the industry.
Following Information Technology is the Healthcare industry, declining by about 63 percent. The 63 percent declined occurred on top of a 54 percent decline in Q4 2012.
The third largest decliner is the Business to Business category, down 62 percent from Q1 2012. Over the prior three years, Business to Business deals represent the largest dollar volume at about $1.5 billion; a drop in this industry is therefore quite important to aggregate figures. The second quarter will likely give further indication if the Q1 figures are simply statistical noise or something more worrisome.
On the other end of the growth spectrum, Business to Consumer came in up about 83 percent. Growth in Business to Consumer deals is important in that the categorization represents the third largest dollar volume area since 2010. The growth also represents a reversal of a three year downward trend in the industry.
Coming in second for growth is the Energy sector at 10 percent. This growth represents a welcomed bump up from 2012, a year that was not very conducive to private equity deal making, where deals declined from $323 million in 2011 to an estimated $171.5 million in 2012. Confidence in the Energy sector is generally a sign of confidence in overall outlook of the economy, although it could be more a sign of consumer demand shift.
The third largest year-over-year growth figure is the Materials & Resources industry. The industry is coming off a healthy 2012, and for 2013, combined with strength in the Energy sector, means there is confidence in the non-cyclical component of the economy.
Overall, private equity deal making slowed in the first quarter of 2013, with the weakness showing up in the Business to Business, Healthcare, and Information Technology industries. Pitchbook’s report wasn’t all bad news, however, with reported strength in the Business to Consumer, Energy, and Materials & Resources industries. Longer term trends should become more apparent as the second quarter progresses.
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