From 2014 through the end of last year, private equity firms recorded an aggregate exit value of $1.7 trillion. Venture investors saw $224 billion over the comparable period. After such a sales spree, it seems fitting that exit volumes slid throughout 2016 for both PE and VC, although the implications of those declines are increasingly worth heeding.
In the face of consistently high prices, can the sellers’ market remain intact for much longer?
For the first time, we’ve compiled both PE and VC data into one comprehensive overview. From general activity to median transaction sizes, our 2016 Annual PE & VC Exits report features a plethora of datasets, providing snippets of analysis on key drivers of exits over the past few years and how they may change in 2017.
A few highlights from the report, which is sponsored by Deloitte:
- 2016’s venture-backed exits hit a five-year low in volume, recording only 1,152 completed
- The PE investment-to-exit ratio persisted at a low of 2x, same as 2015
- A breakdown of exits by sector and size
Reversion To Historical Mean
PE & VC Exits overview
Note: The geographic scope of this report covers both North America and Europe.
Key takeaways & statistics:
- 2016 overall healthy for private equity sellers in both volume and value
- Venture-backed exits’ slide in count more dramatic, yet exit value also robust
- $1.7 trillion in combined exit value over past three years for PE firms
- Much more skewed by outliers, venture firms recorded $224 billion across same period
- Plenty of value remaining to be unlocked in VC portfolios given recent investing boom
- PE inventory still high but not quite as pressing, taking advantage of a persisting sellers’ market still a priority
Looking back at the year as a whole, overarching trends become clearer, emerging from the occasionally murky quarterly volatility. Even though both private equity and venture capital firms saw their exit volumes decline—the latter much more so than the former— overall exit value remained robust on a historical basis. Especially in light of how strong 2014 and 2015 both were in terms of PE and VC-backed selling, it is clear that even if exit activity is overall subsiding, it is not plummeting—at least not yet. At this point in the exiting cycle, anecdotes of increasing bifurcation in the marketplace continue to crop up, while diverging volume and value—coupled with high transaction multiples—suggest there is still plenty of appetite for certain holdings, but buyers’ criteria is more selective than in the past few years.
Looking forward, accordingly, continued declines in PE exit flow may well continue into 2017 as valuations remain stubbornly high. VCs, on the other hand, still have plenty of high-flying businesses on their hands that could begin looking for an exit at some point this year. For both types of sellers, timing is becoming more and more important. It’s not that strategic M&A will fall off a cliff or markets will remain jittery enough that going public stays a dubious prospect, but more about capitalizing on high valuations in the private sphere while they last. For those investors looking to take their companies public, it’s about effectively communicating a narrative compounded of both durability and growth during roadshows. The times are uncertain if optimistic, and corporate buyers’ and investors’ incentives remain intact—liquidation is still achievable, if harder than before.
Overall trends stay stable
PE-backed exits by industry & size
The consumer sector’s outsized $133B in exit value was driven by outliers such as Petco’s $4.6 billion secondary buyout.
Surge of large exits in 2016
VC-backed exits by sector & size
No less than 56% of 2016 VC-backed exit value was derived from $500M+ exits, the highest tally of the decade.
Exit size trends down
PE-backed exits by type
As PE-backed exit volume overall has subsided quarter over quarter, the importance of secondary buyouts as an avenue to liquidity has become even more crucial. Corporate acquisitions may remain the primary source of exit value—$336.2 billion in 2016 alone, second-highest of the decade—but when it comes to volume, fellow PE sponsors have kept pace with strategic buyers even amid the decline. Plus, interestingly, even as SBO volume has subsided, their median size remains the highest of all exit types. This is attributable in part to an overarching trend of larger PE firms purchasing other PE portfolio companies as they possess the requisite resources to help them scale up to a level beyond what their prior owners could provide.
VC exits continue decline
VC-backed exits by type
A year that began with hope of unicorns heading to exit failed to pan out the way many had imagined. While overall exit value remained high relative to sums from the past decade, the number of completed exits in Europe and North America fell by more than 350 YoY. More telling of the decline is that completed exits have fallen in five of the past seven quarters after seeing 417 transactions in 1Q 2015. Just 249 exits were completed in the final quarter of 2016. The enormous amount of late-stage capital that was raised in 2014 and 2015 could be the culprit behind last year’s low exit count, as companies that normally would have exited had a longer capital runway that allowed them to spend more time to focus on their core business before searching for an exit.
The primary source of exit value
The median VC-backed corporate acquisition size surged to a new high last year, signaling strategics’ interest.
Read the full report here.