One of the most well-known data providers used by private equity professionals is Pitchbook. They’re out with their take on the top 9 trends in US-based private equity activity right now.
Before looking at the list, which topics would you guess show up? Take your guess now – the top 9 list follows.
#1: 2018 is on pace for a record
The first trend Pitchbook mentions is overall deal value. With a flurry of $1 billion and above deals closed so far in 2018, the year is on pace to be a very good year for total deal value. Interestingly, of the total deal value, a large chunk comes from just one deal – the $21 billion buyout of Dr Pepper Snapple Group by JAB Holding and BDT Capital Partners.
Source: Pitchbook
#2: 2018 may end up being the year of the buyout
One of the more intriguing Pitchbook observations is that deal add-ons as a percentage of total buyouts is on track to be the highest ever. Should the Pitchbook data prove-out for the remainder of 2018, the percentage of total private equity buyouts that are add-ons may approach 70%. Amazing.
Source: Pitchbook
#3: Business to Consumer and Energy Gets Outpaced by IT and Healthcare in 2018
This observation is probably completely unsurprising. Should current trends continue through the end of 2018, deal counts for the IT and Healthcare sectors will outpace Business to Consumer and Energy.
Source: Pitchbook
#4: Smaller deals are losing favor
The fourth observation is that smaller deals – those with an aggregate value of $25 million or less – are making up a smaller percentage of total private equity activity in 2018 than any year since 2010. This is interesting given the incredible strength of the small business sector over the past few years. That growth has either not attracted private equity interest or has less interest in private equity.
Source: Pitchbook
#5: The number of exits are down, but exit value may reach 2017’s healthy figure
The fifth observation out of Pitchbook is that the number of exits is down in 2018, but exit value could potentially reach the healthy levels of 2017. Overall, a very good, but not unsustainable year, for private equity exits.
Source: Pitchbook
#6: Financial services and energy look to be the darling in 2018
Pitchbook’s sixth observation is that initial public offerings (IPO) are more likely in financial services and energy in 2018. This is somewhat unsurprising given the immense interest in fintech and the rise of clean energy.
Source: Pitchbook
#7: Median IPO size is down slightly in 2018
It’s been a relatively eventful year in the public markets, and that might be showing up in IPO sizes. The most recent estimate has IPO size down slightly in 2018 compared to 2017, although still relatively healthy.
Source: Pitchbook
#8: Fundraising is down a lot
Perhaps the most surprising point in Pitchbook’s list is that fundraising is down significantly in 2018. Private equity fundraising reached almost $224 billion in 2017. As of now, 2018 fundraising has only garnered $121 billion. Not pretty, but at least better than the doldrum days of 2009 through 2012.
Source: Pitchbook
#9: Bigger funds gain favor
The last observation from Pitchbook’s list is that investors shifted attention to mid-large funds in 2018. Mid-large funds ($1 billion to $5 billion) have accounted for about half of all private equity fundraising in 2018 so far.
Source: Pitchbook
Conclusion
Overall, there’s a flurry of private equity activity going on right now. Part of this is driven by historically low interest rates. Another part is driven by a booming economy. And others parts are driven by stronger expected returns from private equity funds relative to other financial vehicle managers. All in all, it’s a good time to be working in private equity.
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