North America deal activity slows while Europe and Asia see positive Q1 dealflow

2017 Hedge Fund Letters

Private equity-backed buyout deal activity fell markedly in Q1 2017, as 970 transactions were announced for an aggregate $53bn. Preqin expects these figures to rise by around 5% as further information becomes available, but this level of activity is on par with Q1 2016, which saw widespread concerns about a slowdown in dealmaking. Private equity firms completed significantly more buyout transactions in North America compared to Europe, but both regions recorded a similar aggregate value of investment – $25bn and $20bn respectively. Additionally, four of the 10 largest deals of the quarter were for European assets, as the region looked to rebound from a slowdown in H2 2016. The Asian market also saw an uptick in buyout deal activity following a similarly disappointing 2016. Deal value in the region totalled $7bn in Q1, surpassing three out of four quarters of 2016.

Private Equity Buyout Deals

Key Q1 Private Equity-Backed Buyout Deals and Exits Facts:

  • In Q1 2017, 970 private equity-backed buyout deals were announced for a total of $53bn, down from the 1,058 financings seen the previous quarter, which were worth a combined $89bn.
  • North America saw a slowdown in buyout deal flow in Q1 2017, with buyout firms investing $25bn, while in a positive start to 2017 Europe and Asia recorded financings totalling $20bn and $7bn respectively.
  • Despite just 7% of buyout deals being worth $1bn or more, large-cap financings accounted for 57% of the aggregate deal value.
  • The largest buyout-backed deal recorded in Q1 was Blackstone’s $4.8bn acquisition of Aon Corporation’s Employee Benefits Outsourcing Unit.
  • The private equity buyout-backed exit environment also saw a drop off in activity in Q1, with 394 exits occurring for a combined value of $48bn, down from the total exit value of $93bn seen in the previous quarter.
  • Trade sales continue to represent the most common method of exit, accounting for almost two-thirds (63%) of the combined exit value, while IPOs account for 20%, up seven percentage points from 2016.
  • Onex Corporation’s $4.3bn sale of USI Holdings Corporation to KKR and CDPQ marked the largest private equity buyout-backed exit in Q1 2017.

Private Equity Buyout Deals

Christopher Elvin, Head of Private Equity Products:

“The private equity buyout market saw a marked slowdown in both deal and exit activity in the first quarter of 2017, as managers struggled to navigate a market of intense competition and high valuations. 2016 marked a record high in terms of the number of deals completed, yet the momentum has not carried over into 2017, and the aggregate value of these transactions has continued to decline.

Private Equity Buyout Deals

However, private equity fund managers will note that the total value of buyout investment has surpassed Q1 2016, which was the slowest quarter of that year. They may be hoping for a similar pattern in deal flow this year, especially as the majority of firms stated that they intended to up their investment over the course of 2017. Concerns over pricing will not disappear, so managers will have to step up their efforts to find pockets of growth and opportunity on both a sector and a geographical level.”

For more information, see the full Q1 Private Equity-Backed Buyout Deals and Exits factsheet here: https://www.preqin.com

Article by Preqin