Bain & Company tenth annual Global Private Equity Report said private equity funds had $2.5 trillion in disclosed buyout deal value.
Limited partners, the report noted, remained enthusiastic and flooded the market with fresh capital, while general partners were placing higher amounts of capital to work, reflecting an acceptance of a level of discomfort when investing.
“The last five years, from 2014 to 2018, have been some of the best in the private equity industry,” James Viles, partner in Bain’s Private Equity Practice said.
“We’ve seen some of the highest levels of capital raised and put to work, the most exits and decent returns.”
Mr Viles added that private equity firms are working overtime to keep momentum going.
“Chronically heavy competition is driving deal multiples to historic highs, and growing jitters about an eventual economic downturn are impacting decision-making,” he said.
“These risks are raising the bar for the buyer to do great due diligence, which involves integrating both the commercial and operational sides of diligence, and to structure deals thoughtfully.”
Although the total buyout value of private equities grew, the number of individual transactions fell by 13 per cent, to 2,936 worldwide.
Bain & Company said the performance came from an upswing in public-to-private transactions, which globally reached their highest value since the last take-private boom in 2006-2007.
“As private multiples have surged and public multiples begin to price in the threat of a recession, a record number of companies are drifting into private equity’s public-to-private (P2P) sweet spot,” the firm said.
“These are companies with an enterprise value between $2 billion and $10 billion that could be purchased for a multiple plus take-private premium that is still below the average private market multiple.”
Exit activity for 2018 came in par with 2017, bringing total disclosed exit value since 2014 to $2 trillion last year.
General partners raised $714 billion from investors during last year, the third largest amount on record, the report noted, bringing the total since 2014 to $3.7 trillion.
Buyout funds continued to draw the biggest share of capital, but investor interest during this record stretch has been broad, benefiting all variety of funds, Bain & Company said.
It added that 90 percent of limited partners say they intend to maintain or increase their private equity allocations.
Mr Viles said firms need to adjust their investment and capabilities to larger deals.
“The trend toward bigger and bigger deals, including large take-private transactions, will require significant changes in how most PE firms operate,” Mr Viles said.
“A playbook for a $20 billion acquisition is not a simple ‘scale up’ of the playbook firms use to unlock value at a $2 billion company.
“Tackling larger deals successfully means matching due diligence and resources close to the increased scale of the investment.”
