Report Reviews M&A Role in Private Equity

What is the M&A role in private equity?

According to Institutional Investor, “A record portion of the companies acquired so far this year were backed by private equity and venture capital firms, a Pitchbook study revealed.”

Indeed, Pitchbook states that “after a record-setting 2016, M&A activity in North America and Europe has totaled $1.42 trillion across 13,972 deals through 3Q 2017, declines of 19% and 23% from the same period last year.”

“As private equity becomes more competitive and prices remain elevated, the traditional tools of leverage and multiple expansion are unlikely to be sufficient for producing typical PE returns,” Dylan, Cox, a senior analyst at PitchBook and one of the report’s authors, said in a statement. “Managers are likely to use buy-and-build strategies as a selling point with potential LPs, which makes it important to understand how that strategy might effect fund returns.”

However, Pitchbook also raises the question: “But as the cycle winds down, and private markets become increasingly institutionalized, are we due for a mild correction or a longer-term reset?”

The increased volume may be being met with increased competition.

Pitchbook separately reports: “As deal competition in Europe increases, finding the right investor or acquirer for your client has never been more important. Yet building buyers lists has become more challenging as the private equity landscape grows more crowded. Over the last decade, the number of private equity investors has risen 52% percent globally, driving fund volume to record levels. Currently, almost 4,000 active private equity investors have 4,832 open funds and over €865 billion in assets under management—telling indicators of the explosion of activity we have seen as more investors enter the market or start their own firms.”

Offshore M&A Role in Private Equity

Relatedly, the volume of offshore transactions is also on the rise.

Private Equity Wire notes: “The latest edition of Offshore-i, an Appleby report that provides data and insight on merger and acquisition activity in the major offshore financial centres, focuses on transactions announced over the first half of 2018. Following a similar pattern to most of the world’s regions, the volume of offshore deals has fallen back from levels seen in the latter half of 2017, while value is on the rise.”

In the same piece, Cameron Adderley, Partner and Global Head of Corporate at Appleby says: “So far this year, there has been more than USD215bn spent in the offshore region, with the average deal size of USD161 million representing almost double that of 2017. There are echoes of 2015, a remarkable year for offshore.”

On some level, the activity may be a continuation of last year’s trend. Last October, Institutional Investor reported that “a record portion of the companies acquired so far this year were backed by private equity and venture capital firms.”

The piece quoted the Pitchbook report out at the time and noted that “16.9 percent of all mergers and acquisitions completed in 2017 as of September 30 involved target companies owned by institutions, compared to 15.5 percent of all 2016 deals.”