Private Equity Firms Put $300B Dent in Dry Powder

Total buyout deal value fell by $90 billion despite record levels of investor capital.

Capital deployed by private equity firms in buyout deals shrunk significantly this year, Preqin has reported.

Despite near-record numbers of global buyout deals, reaching almost 4,000 transactions in total, the data company reported that managers invested just $319 billion in buyouts—a $90 billion fall from last year’s $409 billion.

As of the end of 2015, buyout firms had amassed $461 billion in dry powder to allocate, and fundraising continues to be “strong,” said Christopher Elvin, head of private equity products at Preqin.

“The opening quarter of the year represented some of the lowest levels of global deal flow seen in recent years, but since then, buyout deal activity has rebounded well and is on track for a record number of transactions,” he said.

Buyout deals larger than $1 billion represented most (62%) of the total deal value in 2016, but the majority of transactions were small-cap deals worth less than $100 million each.

The industry sector targeted with the most capital was information technology, scoring 30% of total deal value, or $97 billion. Healthcare and retail sectors also attracted high levels of investment, accounting for 13% of deal value each. Meanwhile, the industrials sector, with 858 deals, had the highest number of transactions.

Most of the largest private equity-backed buyout deals were in the US, including ADT Security Services’ $15 billion merger. In total, North American deal value represented $190 billion.

Private equity-backed exits also cooled slightly, following sharp growth in 2014 and 2015, according to Preqin. Throughout the year, 1,682 exits worth a combined $330 billion were made, compared to 1,859 exits totaling $431 billion in 2015, and 1,910 exits worth $465 billion in 2014.

However, Preqin said 2016 exit activity "remains on par with 2013 and surpassed all preceding years, as market participants continue to enjoy a favorable exit environment."

“2017 seems likely to present a continuation of the levels of activity in the buyout and exit markets recorded in the past few years,” Elvin said. "Record high levels of capital available to fund managers, as well as continued strong fundraising, means that there is a lot of capital ready to be put to work, and activity is likely to be correspondingly strong.”

Related: Private Equity Breaks More Records 

| Christine.Giordano@strategic-i.com | 212-217-6929