New opportunities bring balance
to private equity
Our Global private equity watch 2014 finds balance returning to the industry.
Having proven it can react and even thrive in difficult market conditions, PE continues to navigate 2014 with increased confidence. Optimism abounds regarding investment prospects, exit alternatives and follow-on capital opportunities.
Sustained good news in the US and an improving outlook for many European countries initiated the rebalancing of investor portfolios back toward domestic markets. Compared to recent years, global funds are likely to invest more capital in developed markets as they seek larger transactions.
At the same time, PE activity in emerging markets will persist because many firms have spent recent years building capital and talent.
IPO market makes strong return
The most compelling story in 2013 was the return of the PE-backed IPO market, which had its strongest year on record with US$58.5b raised. By year end, 187 PE-backed IPOs had priced, compared with 110 in 2012.
Top 10 IPOs 2013
The resurgence in EMEA was particularly striking. In 2013, PE firms raised US$17.8b across 35 IPOs, compared to just six raising US$2.3b in 2012.
As hold periods have lengthened over the last five years, PE has intensified its focus on making operational improvements in the businesses it backs. This hands-on approach is starting to bear fruit as investors respond with strong demand for PE-backed assets.
PE can now exit some of its largest portfolio companies, many of which date to the pre-crisis era. This is beginning to restore balance to PE portfolios, offering relief around aging investments.
New exit routes in emerging markets
Until recently, IPOs had been the mainstay of markets such as Asia-Pacific. Now, options are broadening as trade sales increase and the proportion of exits and secondary buyouts become more common.
Overall, PE firms in emerging markets are managing to balance exits across the main available routes rather than relying too heavily on a single type of realization.
Stability is also returning to the fund-raising markets. Developed market totals are up, while funds in emerging markets are now focused on deploying the high amounts of capital they’ve raised.
Total 2013 commitments to PE funds in developed markets increased by 17% over 2012, to US$401.1b. Indeed, 2013 was the best year for fund-raising since the 2008 peak of US$634b.
Although that boom era peak is unlikely to be challenged any time soon, confidence is solid. Two-thirds of GPs are now optimistic about the fund-raising environment, according to the most recent PE Capital Confidence Barometer.
LPs now seek to build a broad spread of commitments across developed and emerging markets. In 2013, emerging markets fund-raising accounted for 12% of the global total, compared to 20% in 2012. Nevertheless, the decline follows a decade of exceptional growth. This is restoring some balance to the fund-raising outlook.
Top 10 IPOs 2013