KKR was the most active private equity in 2013 investing in 34 deals in the year and making a total investment of $17.4 billion on companies according to data tracked by Dealogic. KKR was well ahead of Carlyle Group, which was the second most active private equity in 2013 with investment of $4.8 billion in 27 companies. TPG with $11.2 billion investment in 26 deals was ranked third in the number of completed deals and Bain Capital Partners with a total of 25 deals in the year was the fourth most active private equity in 2013.
High Valuation Prompts Fewer PE Deals
According to Dealogic, there were 347 sponsor backed transactions this year, a sharp decline from 480 deals in 2012. However when measured in dollars this year’s deal value at $111 billion is 27 percent higher than the $87.62 billion done last year.
With the stock market in a firm uptrend throughout the year private equity funds have struggled to find companies at attractive valuations to take private. Carlyle’s co-chief executive William Conway acknowledged that its buyout fund is having trouble finding targets despite raising its largest pool of buyout money since the 2008 financial crisis. Echoing his sentiment, Ted Koenig, CEO of Monroe Capital LLC, a Chicago-based lender to private-equity firms says “It was a target-rich environment in ’09, ’10 and ’11, but less so now,” says Ted Koenig, CEO of Monroe Capital LLC, a Chicago-based lender to private-equity firms. The targets are “not as plentiful, and there’s a lot more fishermen in the same pond.”
Mega PE Buyout Trend
Despite two mega takeover deals this year that of Dell Inc. and H.J. Heinz Co. with each valued at more than $20 billion, private equity fund managers aren’t anticipating a spurt in mega buyouts. Among the top 10 deals, there were three deals this year in excess of $5 billion, while four were less than $2 billion. In comparison, all of the top 10 largest deals during 2012 were in excess of $2 billion.
Going into 2014, fund managers expect high valuation as one major hurdle for private equity firms looking for deals. Data from Standard & Poor’s show current purchase price multiples, a common indicator to value businesses at the third highest levels since 2007.
According to private equity consultant Don Lipari, there is a lack of quality deals in the marketplace. Lipari says, “Anyone who wanted to sell or was on the fence about selling did so in 2012, and the market had flushed out a lot of quality deals,” adding “The rest got expensive or not that attractive.”
PE Exits Top $120 Billion in 2013
According to data compiled by Cambridge Associates LLC, private equity investors will likely receive more than $120 billion for 2013, topping last year’s record of $115 billion. Private equity exits were $60.8 billion in the first half of 2013. Blackstone co-founder and CEO Stephen Schwarzman revealed at a conference this month that he recently thanked Federal Reserve Chairman Ben Bernanke for investors’ prosperity in 2013. The Federal Reserve’s zero interest policy is perceived as boosting stock prices and other asset classes. Despite a strong 2013, the unease of private equity funds over current valuation of assets will likely result in subdued job market in the near term.
