Strategic sales and increased fundraising are on the agenda for PE firms but the valuation gap is still an issue.
Our survey reveals that strategic sales are the expected exit route for firms and fundraising for oil and gas will continue to increase — however, the valuation gap could still prove to be a stumbling block.
The majority of respondents expect sales to strategic investors (58%) to dominate their exit strategies, as the outlook for capital markets is uncertain following macroeconomic turbulence at the beginning of the year and stock devaluation via depressed commodity prices.
As sellers, PE firms believe they will get the highest return of investment from a sale to a strategic buyer. Large integrated oil majors have the firepower and the longer-term planning horizon to do deals of size in a still volatile environment.
“[The exit strategy] totally depends on the industry, nature of the business and valuation of the asset, but so far we have received the most value from sales to strategic buyers,” says the managing director at a French PE firm. “Negotiations with these buyers are straightforward and there are fewer complexities if the deal terms are clear and the objectives are well defined.”
However, many feel it is not a good time to monetize assets through a sale. While a majority (59%) says they have not delayed an exit on a portfolio company, a significant number of respondents say they have made such a delay (41%). Of the latter, 59% say the primary reason was an unexpectedly low valuation.
"Buyers are following the market valuations, but the sellers are focused fully on the intrinsic value [of their company]."
Partner, US PE firm
As market fundamentals remain largely unchanged and steeped in uncertainty, sellers are not yet ready to meet buyer expectations of cheaper prices.