This summer’s private equity (PE) activity was characterised by a high volume of exits from portfolio firms. In the UK, we tracked 67 deals across June, July and August, out of which 54% were exits. This trend seems to be following through into the autumn, as in September we have recorded 13 exits accounting for over 50% of September’s overall private equity transactions.
Private equity exits in September included mainly trade sales to larger trade buyers and secondary buyouts. Well-known PE houses such as Inflexion, BGF, Cinven, Palatine and Equistone achieved notable exits over the summer. Among the top exits this past month is Cinven’s sale of Guardian Financial Services to trade buyer Admin Re for £1.6bn. September was a lucrative month for Cinven, as it sold its stakes in both AMco and Guardian Financial Services to trade buyers while having held them for approximately 3 and 5 years respectively.
September’s data seems to indicate a preference towards trade sales in terms of exit strategies. The choice of trade sales could be explained by investors’ hesitation of making an IPO exit.
Main drivers behind the rise in exit volumes
1. Corporate activity
Having sat on cash piles through most of the recession and with the debt markets providing cheap covenant light money, there is an appetite amongst corporates to grow their top lines through acquisition. This is providing investors with an easy and clean exit route in many instances.
2. High valuations
In part driven by the above, but also with a significant amount of dry powder in the PE market itself, valuations remain high. Good businesses with compelling growth plans are seeing multiples and corresponding valuations starting to reach pre-crisis levels again. For many investors eager to show LPs a return prior to raising new funds, now is very much the time to sell.
Whilst we expect the exit trend to continue through the end of 2015 and into 2016, we’re anticipating a more balanced market with an increase in management buyouts. There is LP pressure for funds to deploy capital and there is an appetite among entrepreneurs to realise value after what has been a long and tough last few years. Valuations remain a challenge as do some macro and geo-political factors, but we think the underlying market conditions are conducive to an increase in buy-out activity.
Arden Tomison, Director
News & Insight