2017 Global PE Watch

In-between days – PE firms look for their opening

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After having spent the last three years exiting companies at a brisk pace and distributing massive amounts of capital back to their Limited Partners, Private Equity firms now have record amounts of dry powder to put to work on new deals. At the same time, with high valuations, putting those assets to effective use has been far more challenging.

Fundraising sees another strong year, but could level off in 2017

PE firms raised more than US$530b last year, and now have more dry powder than at any time in their history. A number of competing dynamics will define the health of the fundraising market over the coming year.

EY - Global PE fundraising by year

With many public market indices at or near record highs, investors are looking to alternatives in order to reach their portfolio objectives. At the same time, exits and distributions are slowing, and the industry is already largely in the possession of the capital it needs to fund the next cycle of deals.

As such, the outlook for fundraising, particularly in the large buyout space, could be constrained until firms are able to deploy a meaningful percentage of their existing commitments.

Deal activity stabilizes amid high valuations

Deal activity fell 4% in 2016. While valuations declined modestly during the year, they remain high relative to historical averages, and firms have remained disciplined in their approach to investing.

EY - Global PE deal activity by year

With multiple expansion largely off the table, firms are relying on leverage and value creation to drive returns.

Technology, health care and utilities move to the forefront

PE firms spent much of the year looking at deals with strong noncyclical components, especially in the power and utilities and heath care spaces, while technology continued to attract interest across a range of subsectors, including software, hardware, internet and semiconductors.

Exit activity is slowing as firms shift their focus to deployment

Having sold many of the assets acquired during the boom years, PE activity has since slowed, and firms are generally far more comfortable with the size and age of their portfolios than they were just two to three years ago.

EY - Global PE deal exit by year

As a result, exit activity fell 22% in 2016. While IPOs saw the steepest decline, the stage is set for a robust year for new issuance in 2017.