This year is off to an interesting start. Markets are hanging around all-time highs and the global economy looks to be re-accelerating. Will private equity follow suit?
Private equity research firm Pitchbook recently released their perspective on what 2017 has in store.
Global Deal Value and Transaction Counts
The 2016 year ended in a state of healthy, but cooling conditions. Global deal value, measured in dollars, declined slightly from 2015 values to $649 billion. That represents a decrease in deal value of about 12%.
On the transaction front, the number of deals declined from 4,131 in 2015 to 3,538 in 2016, or a decline of about 14%. The fact that the number of deals declined more than deal value indicates that valuations are still on the rise.
What does Pitchbook see for 2017? Generally, more of the same – meaning a healthy, but at times frothy, private equity deal market. They don’t see a recession or any big increase or decrease in deal value or transactions, contrary to what some prognosticators see occurring in 2017.
Source: Pitchbook
U.S. PE-Backed Companies
What about the overall state of the industry? Will it continue to expand? Pitchbook seems to think so, and the following graphic confirms that continued growth in companies backed by private equity is most likely to be the case.
Over the past 11 years, the number of U.S. private equity-backed companies has grown from 3,043 in 2005 to a high of 7,168 in 2016. Fascinatingly, of the 7,168, almost all of the companies (shown in the right column in green) were backed in the 2011 to 2016 years. The industry has grown, and looks like it will continue to grow at healthy rates in the coming years.
Source: Pitchbook
What Private Equity Sectors Might be a Little Frothy?
Presuming a backdrop of overall healthiness, which private equity sectors might be a little frothy? Well, take a look at the following chart from the same Pitchbook report. The figure shows the recent boom in the information technology (IT) and growth in the energy sectors.
In orange is the IT sector. Overall, the number of deals closed continued to expand in 2016, going from 551 in 2015 to 567 in 2016. Value exploded, going from around $75 billion in 2015 to around $150 billion in 2016.
The energy sector was not “as booming”, going from 210 closed deals in 2015 to 213 deals in 2016. Value in the sector increased by a stronger margin, going from around $40 billion to around $50 billion.
All in all, 2016 was a good year to be a private equity-backed company.
What does 2017 portend? Probably more of the same. Perhaps some cooling in the IT sector, but no falling off a cliff – or perhaps not any cooling at all.
Source: Pitchbook
Conclusion
Overall, 2016 was a healthy year for the private equity industry. If early indications are correct, 2017 looks to be more of the same – healthy business conditions, but not bubbly or recessionary. Just healthy. For the foreseeable future, it looks like it’s a good time to be in the private equity industry.
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