Private equity deal-making pulls back amid ‘sky-high’ valuations

Private equity fund managers have reduced the pace of their deal-making amid “sky-high” valuations and another record year in 2019 for ‘dry powder’.

For the fourth year in a row private equity funds raised over half a trillion dollars last year, but deal-making declined as fund managers were concerned about overpaying for acquisitions.

Private equity funds that raised money and closed in 2019 raised $595 billion – the fourth year in a row to surpass half a trillion dollars. It was also the third-highest total on record after 2017 and 2018.

The year saw $393 billion in buyout deals compared to $493 billion in 2018. The high level of deals – including for venture capital deals even though they also fell from the year before – was aided in part by sky-high valuations, which saw the average buyout deal size hit a ten-year high of $490 million, said Preqin.

The impact of high valuations on future performance has weighed heavily on fund managers, and many have been slowing the pace of their deal-making as they make sure not to overpay for acquisitions, Preqin said. As a result, ‘dry powder’ – money waiting to be invested – hit a new high of $1.43 trillion.

Yet competition is unlikely to abate in 2020, Preqin said. At the start of the 2020 there are over 3,500 funds in market, collectively seeking $926 billion.

Christopher Elvin, Preqin’s head of private equity, said investor sentiment was positive and many institutions were looking to increase their private capital investments in the face of a potential downturn.

He added: “But it is not without its challenges: intense competition for deals has pushed the average buyout investment to a size not seen since the Global Financial Crisis, and future returns may suffer as a result. But overall, private equity remains sought-after by investors, and we are likely to see capital continue to flow into the asset class in 2020.”

©2020 funds europe

HAVE YOU READ?

THOUGHT LEADERSHIP

The tension between urgency and inaction will continue to influence sustainability discussions in 2024, as reflected in the trends report from S&P Global.
FIND OUT MORE
This white paper outlines key challenges impeding the growth of private markets and explores how technological innovation can provide solutions to unlock access to private market funds for a growing…
DOWNLOAD NOW

CLOUD DATA PLATFORMS

Luxembourg is one of the world’s premiere centres for cross-border distribution of investment funds. Read our special regional coverage, coinciding with the annual ALFI European Asset Management Conference.
READ MORE

PRIVATE MARKETS FUND ADMIN REPORT

Private_Markets_Fund_Admin_Report

LATEST PODCAST