It’s been a tumultuous year, particularly as no Brexit deal has (at time of writing) been reached yet. Still, the private equity 2018 scene overall was very positive, with a large number of deals and impressive exits to mark the year.
Over the first 3 quarters in the European private equity markets, deal-making activity has been healthy and, should it continue in this manner for Q4, 2018 is likely to be third best year on record. However, that said, Q3 of 2018 was the weakest of the year so far in the European markets, with 731 deals being completed at a total value of €82.6billion according to Pitchbook. This means the year-to-date totals are 2,327 deals worth €276.8million, around 15% lower on each compared with the first 3 quarters of 2017. One reason for the lower total value of deals might be that the amount of deals closing worth over €2.5billion has significantly lowered – dropping by almost 50% from 14 in the first 3 quarters of 2017 to 8 in the same period of 2018. But, interestingly, the median deal size has actually grown by 22.1% to €24.4million.
On the exit side in the European market, total exit count and value is likely to behind previous years as there is a falloff in exit activity. Perhaps this is because private equity firms are putting an effort in elsewhere as fundraising has already hit the third-highest annual level in the past decade – and the year isn’t even done yet! Fundraising so far has totalled €55.8 billion across 54 funds; however, this mainly stemmed from fund closures in Q1. Just as deal-making was weaker in Q3 of 2018, fundraising also trailed off in Q2 and Q3. Yet, despite this, capital commitments are likely to be about the same as last year’s record-breaking numbers, if not beat it. This could easily happen if four funds that are seeking over €1 billion close in Q4. The largest close of the year so far has been Intermediate Capital Group PLC’s (ICG) €3.7 billion ICG Europe VII mezzanine fund.
In the US market, there is a different story, with a number of deals worth over $1billion making 2018 likely to be a recording breaking year. So far this year there have been 3501 deals with a total value of $508.8B. A number of mega-deals were completed in Q3 which increased the total deal value – the largest being the acquisition of Dr Pepper Snapple Group by JAB Holdings and BDT Capital Partners for $21 billion, according to research by PwC. There has been a particular interest in insurance companies, which is beneficial on both sides as PE investment often boosts profits for insurance firms while the private equity firm gains access to more permanent capital thanks to the insurance company. This is certainly a trend to watch.
However, more similar to the European market, exit count in the American private equity market is lagging compared to 2017, yet the value of these exits looks set to match last year’s final total of $365.0 billion by the end of Q4. This means that, while fewer exits are happening, they are of higher value. The first three quarters of 2018 saw 752 exits valued at $280.2 billion, and the median exit size expanded to $354.5 million, an all-time high. However, 2018 sees a slowdown in fundraising in the US, but this should not be worrying as 2017’s figures were exceptionally high – and indeed a post-recession high. This is partly because very few mega-funds closed. On the other hand, first-time funds continued to re-emerge in 2018, making up 13.3% of all funds to close so far in the year, compared to 10.7% in 2017. It’s important to notice that all these figures are not even close to those we were seeing pre-recession, despite Trump’s near constant claims that the US economy is better than ever.
But it is not just the European and American markets seeing interesting activity. In India, for example, private equity-led buyout deals hit a record $5.5billion in 2018, demonstrating that there are exciting investment opportunities around the world and across many sectors – we wrote about the boom of the Indian private equity market recently, and it’s interesting to realise it hasn’t yet slowed down. As Suzanne Lupton, Director of Co-Investment at Maven Capital Partners told Business Leader: “Demand for private equity remains strong. A key trend has been the growth of deal-by-deal co-investment [….] Another strong trend is growing investment in alternative assets within real estate […] hotels and student accommodation”.
So, there you have it – an analysis of the private equity 2018 landscape and a number of popular trends for the next. But how to choose which trend to follow? We recommend using evidence-based approaches relying on big data and consumer insights to inform growth strategies and help plan for unexpected outcomes. onefourzero would be delighted to support you on discovering what these insights might be.