Thanks to increased public market demand and a return of corporate buyers, North American private equity exits witnessed acceleration over the last year both in value and number, notes an EY study.

EY, in a report titled “A study of 2013 North American exits”, points out market conditions in 2013 facilitated more exits via IPO.

Private equity outperforms public markets

The seventh study of value creation in North America from EY points out private equity continues to outperform comparable public market companies. Tracking its sample completed between 2006 and 2013, EY points out PE returned 2.4x similar publicly listed companies over the same time frame. The report highlights that private equity’s strategic and operational value-add is a key driver of PE performance. The following graph captures the trend:

private equity exits Vs public companies

The EY report points out that private equity is demonstrating that it can crystallize the value of many deals completed pre-crisis. Private equity is making distributions to limited partners at a faster rate than it has deployed the capital.

The EY report notes for deals with an entry EV of $1b+, 25% went to M&A buyers, a proportion that has increased steadily over the last two years, as set forth in the following graph:

private equity Exit percentages during last few years

For the $2b+ bracket, the increase was more dramatic, with 17% of deals exited via M&A, up from just 10% recorded in 2012.

The report highlights that such an acceleration of exits is facilitating private equity move rapidly out of the danger zone of recent years. Moreover, capital that was until recently anchored in the portfolio has been released within a reasonable time horizon. Thus, the report points out that overall the industry is apparently capable of supporting the capital that has flowed toward it over the last several years.

Hold period maintains uptrend

Interestingly, despite the acceleration of private equity exits last year, hold periods continue to trend upward, having increased annually since 2009. For instance, the weighted-average hold period for exits achieved in 2013 stood at 5.4 years, a full year more than 2012 exits, as captured in the following graph:

Increasing hold period

The EY report points out that as in its previous studies, the majority of EBITDA growth for 2006-13 was derived from organic revenue growth. The following graph illustrates this trend:

Drivers of organic revenue growth

The EY report concludes that private equity has clearly proved itself of not only weathering the worst economic storm in a generation, but of emerging stronger and able to generate outperformance on a consistent basis. Striking a positive note, the report points out that the future looks promising for private equity and the LPs that rely on the industry’s performance.