Private Equity Deals Hit Pre-Crisis Levels

Private equity deals hit $180 billion in 2017, which was twice the level of 2016, and was at the fastest rate since the financial crisis according to new data from Bain & Co.

Record cash levels in the sector have spurred the largest increase in dealmaking since 2007.

The all time high for "public for private" deals (where a private equity firm buys a public company) is 196 transactions, set in 2007, with a value of $423 billion.

2017 fell short of those records but still recorded an impressive 152 transactions, up from 94 in 2016.

The industry standard return of three times the amount paid however, was the lowest ever recorded for the deals concerned.

“The current economic cycle is already producing fewer of the home-run deals that really drive [private equity] performance,” Bain said.

According to Bain, there are 72 potential targets with a value of $50 billion, that are trading below nine times earnings before interest, tax, depreciation and amortisation.

Hugh MacArthur of Bain expects 2018 to be largely similar to 2017:

“There has been a continuous piling in of money into private equity funds. We’ve got an all-time high of [cash ready to be deployed] of $1.7tn, nearly 60 per cent higher than at its peak in 2007,”

“Companies are under pressure to invest and this is potentially causing private equity to be less scared or less mindful of those macro factors.”

Volatility in the markets may actually increase the level of these deals as volatile markets may increase the attractiveness of targets in the short term. However, Mr MacArthur says:

“But if the volatility is substantial and it lasts for months, then it may have a longer-term impact on the public markets.”

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The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

Information is based on our current understanding of taxation legislation and regulations which is subject to change.

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