Rising private equity activity improves fundraising outlook

A record number of exits from private-equity-backed buyouts in Q4 last year signals improvement in the fundraising market as institutional investor confidence returns.

The fourth quarter of last year saw a record number of exits from private-equity-backed buyouts worldwide, signalling improvement in fundraising sentiment as institutional investor confidence in the market returns.

The last three months of 2010 saw $71.8 billion in exit value globally, according to alternative industry data provider Preqin. Last year saw 811 private equity-backed exits in total, with an aggregate transaction size of $203 billion – almost three times the $73.6 billion recorded in 2009.

Manuel Carvalho, managing analyst of buyout deals for Preqin, notes that deal flow in North America and Europe last year was double and triple what it was, respectively, in 2009 as the sector continued its rebound from the dark days of the global financial crisis.

He also notes a continued surge in secondary buyouts globally during 2010, with $49 billion of secondary buyouts announced during the year – almost five times the value seen in 2009.

“The increase in activity should also signal an improvement in the fundraising market, with institutional investors’ confidence towards the market increasing, while high distribution levels will lead to more capital being reinvested in new vehicles as investors maintain their allocations to the asset class,” says Carvalho.

Almost half of all deals announced globally in 2010 were leveraged buyouts, accounting for 53% of the deal value during the fourth quarter. Public-to-private deals contributed 26% of deal value, yet made up less than 5% of the number of deals.

Overall, 593 private-equity buyout deals were announced in the fourth quarter, with an aggregate value of $64.2 billion. This represents a 6% increase in aggregate value from the previous three months, when 593 deals worth $60.6 billion were announced.

Deal flow increased 130% year-on-year and 40% quarter-on-quarter in North America where 323 deals valued at $38 billion were announced in the fourth quarter, compared with 296 valued at $27.2 billion in Q3.

European deal flow stood at $68.1 in aggregate value in 2010, almost three times the $24.2 billion announced in 2009. The fourth quarter saw a 35% increase in aggregate deal value in Europe with 204 buyouts valued at $17.6 billion, down from $27.3 billion witnessed during the previous three months. Deal flow, however, was 39% higher than the same period in 2009.

Asia and the rest of the world, meanwhile, saw a 39% quarter-on-quarter increase, with 66 deals valued at $8.6 billion announced in the fourth quarter compared with the $6.1 billion in buy-outs reported for the previous three months.

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