Private Equity Backed Exit Value Hits $554B In 2015

Private Equity Backed Exit Value Hits $554B In 2015

Private Equity Backed Exit Value Hits $554B In 2015 by PitchBook

A disequilibrium between sellers and buyers


2015 remained a strong year for private equity sellers as the quantity of acquisitive buyers in the market outpaced that of sellers, contributing to sustained high valuations for those looking to exit. While seller expectations remained high, and many were certainly able to negotiate attractive terms in sales processes, those same sellers faced issues finding attractive deals to put capital to work, continuing a bifurcation between success in buying and selling for PE.

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Trends around popular exit ramps remained similar to what we’ve observed recently, with strategic acquisitions accounting for the bulk of private equity backed exit, followed by PE-to-PE buyouts. Strategic and PE buyers have found themselves in the same processes bidding for deals, increasing competition and helping pad exit values for sellers—again a double-edged sword for PE as they look to close deals on both sides of the table. With a wave of new fund managers spinning out vehicles focused on utilizing operational expertise and a deeper understanding of certain sectors, these general partners have been able to help underpin growth in secondary buyouts, deeming their expertise a strategic advantage over other bidders and subsequently bidding much more aggressively.

PE-backed inventory levels remain inflated, and with managers scouring for opportunities after years of overly successful fundraising efforts, we don’t expect this to change in a meaningful way. The rate of investments in the past, such as those made in 2007, has contributed to a rise in zombie vehicles, as fund managers face substantial challenges exiting various companies. Consequently, when you consider these aging assets in conjunction with the dire need of dealmakers to capitalize on any market stutters that could open up a window for investors to become more aggressive, that inventory will remain at least flat in the coming future.

This report spans private equity backed exit in North America and Europe. We hope you find the enclosed data and insights helpful as you assess the macro PE landscape. As always, feel free to contact us with any questions.

Nizar Tarhuni
Senior Analyst

Record year for private equity backed exit


With private equity backed exit value growing at a near 20% CAGR since 2010, the seller’s market extended in 2015, as PE investors sought to take advantage of the froth we’ve seen in multiples. Total exit value last year came in at a record $554 billion across 2,320 completed sales, representing a year-over-year (YoY) climb of 7.5% and 8.6%, respectively. With GPs unloading many of their top-tier holdings in 2013 and 2014, corporate acquisitions remained the primary exit avenue for private equity in 2015, helping drive elevated deal multiples. Seeking transactions that are strategic in nature, corporations are able to pay top dollar despite concerns regarding sustained revenue growth and the quality of current earnings, if targets offer various synergies or help drive efficiencies in existing process that can reap impactful cost savings.

private equity backed exit

PE buyers, however, are forced to be more selective. While many value-driven and operational managers are also deploying capital to new deals, these transactions typically occur at the lower ends of the middle market, yet many dealmakers simply need to write bigger checks as they sit on piles of dry powder. That said, buyers are wary of overpaying unless they have an operational advantage. The current competitive pricing environment has dampened deal flow, which we’ve seen show up in a continued move lower in the investments-to-exit multiple.

private equity backed exit

That figure came in at 1.9x in 2015 compared to 2.1x in 2014, 2.8x in 2010 and 3.9x in 2009, when firms were able to capitalize on distressed opportunities and acquire businesses at depressed prices.

The median time to exit for PE-backed sales in 2015 came in as rather positive news. Across all exit ramps, portfolio companies coming to market during the year had been acquired just 5.1 years prior; this compares to a reported value of 6.1 for all companies exiting in 2014, which saw companies endure a steeper portion of their respective J-curves as they weathered the recession.

Moving forward, acquisitive buyers should continue to outnumber sellers. PE-backed company inventory remains high, yet many of those companies are still too premature to come to market and so while we’ll see exits move higher, they’ll likely do so at a lower percentage, similarly to what we’ve seen over the past few years.

private equity backed exit

Exits by type & industry

Strategic M&A has been the primary driver of exit value for PE sellers, although SBOs played a considerable role.

private equity backed exit

private equity backed exit

Healthcare exits grew in count by 19% YoY, accounting for a massive $67.7B in 2015, 12% of total annual exit value.

Strategics predominate

Corporate acquisitions

Accounting for more than 54% of all private equity backed exit in 2015, the corporate acquisition ramp remains the most sought-after exit avenue for PE. Since the $133.6 billion in total exit value generated via sales to strategics in 2010, the ramp has seen total exit value grow at a CAGR of 22%, with $360 billion being exited across 1,263 corporate buys last year. The record amount of PE-backed inventory continues to contribute to the asset class serving as a playground for corporate acquirers unable to show appealing growth to shareholders amid a changing business landscape and an ostensibly slowing global economy.

private equity backed exit

Further, as competitors continue to seek acquisitive growth, companies are at times being forced to shift their strategies away from traditional organic growth in fear of losing market share. The healthcare and technology sectors accounted for the largest percentage growth in total capital exited to strategics. PE-backed tech sector sales in 2015 amounted to over $64 billion while healthcare represented $55.5 billion, representing respective yearly growth rates of 63% and near 80%.

private equity backed exit

Competition driving SBOs

Secondary buyouts

961 exits worth $153 billion were exited via secondary buyouts in 2015, representing a YoY increase of 13% in terms of volume and 6.7% in terms of value. Total exit value coming through PE-to-PE sales has continued to rise in recent years, yet the YoY percentage growth rate has moved lower. Examining volume, however, the percentage growth rate has consistently grown each year coming out of 2010. Auction processes have increased valuations and, in many cases, priced PE buyers out of deals.

private equity backed exit

As GPs continually scour the investment landscape to put capital to work in attractive transactions, many have been forced to look to the lower middle market to find nonauction opportunities they can close on without much competition. In such deals, PE players can become more like operational partners to family-type and less professionalized businesses, helping them ramp, scale and eventually grow to an attractive size ready to be acquired by other PE firms looking to write bigger checks. We think we’ve begun to see that trend play out, exemplified by SBO volume rising in 2015, while the median deal size for the exit ramp plummeted more than 25% to $225 million, a testament to the increased level of activity occurring in the lower middle market.

private equity backed exit

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