Dubai PR Network, Online Press Release from Dubai and Middle East
 
Money, Business & Investments(Banking & Investments)
Filter PR by
  
Dry Powder Hits New Record High As Private Equity Continues To Outperform, But Competition For Assets Will Require Added Skill To Source Deals And Create Value
 

April 12, 2017- Global markets experienced a roller-coaster 2016 as the outcomes of the U.K.’s Brexit referendum and the U.S. presidential election rocked investors. Yet, the global private equity (PE) industry proved its resilience, turning in healthy results for the year.  Exit activity was strong, but overall totals for 2016 declined as deals that had been on hold during the global financial crisis were finally digested. With investors on the hunt for yield, PE remains a favored asset for institutional investors. Fundraising surged as limited partners (LPs) continued to recycle distributions into new capital commitments. Returns also had another strong showing, continuing to outperform public markets by a sizable gap over both short-term and long-term time horizons. Global buyout activity, on the other hand, declined amid a challenging deal-making environment.   

These are the key findings from Bain & Company, the world’s leading advisor to PE investors, in its eighth annual Global Private Equity report.

In 2016, buyout-backed exits around the world dropped 23 percent in value and 19 percent in count from 2015 and fell even further from the record levels of 2014. But, asset sales of $328 billion in disclosed value from 984 deals actually constitutes an extremely strong run, helping the industry deliver its fourth-best year ever by value.  This decline was not reflective of a worsening exit environment, but was driven mainly by a leaner pipeline of deals ready for exit as the industry has largely worked through the backlog of assets invested prior to the global financial crisis.  

“Given that exits flow from the deals done in previous years, the decline in exit value and count in 2016 wasn’t much of a surprise,” said Hugh MacArthur, who leads Bain’s Global Private Equity Practice. “After several years, the industry has finally normalized through the exits of the massive deals done in 2006 and 2007, like a snake digesting an elephant-sized meal.  So, while not quite the blowout of 2014 and 2015, last year still delivered an impressive showing overall for liquidity.”

With nearly all of the pre-crisis deals exited, buyout firms are adjusting to a new normal with longer holding periods of about 5 years – up from the historical average of about 3.5-4 years.  Bain expects this trend to continue in the medium term, as a result of high purchase prices and limited sources of market beta, requiring general partners (GPs) to roll up their sleeves and do the time-consuming work of creating value with their assets.  

Buyout investment activity decreased in 2016: deal count declined 18 percent and value dropped by 14 percent from 2015 levels.  Record-high asset valuations combined with stiff competition – particularly from corporate buyers – made it tougher for PE firms to do deals and achieve target returns. Purchase price multiples for buyouts rose to an average of 10.9x EBITDA for U.S. deals in the third quarter of 2016.  The difficulty of putting capital to work, combined with ongoing investor enthusiasm for the private equity asset class has led to a new record amount of dry powder, now totalling $1.5 trillion across all PE fund types globally – $534 billion of that targeted buyouts.  

In the MENA region, last year was a transition year for private equity with continuous deal flow in several key sectors. 

“In the retail and consumer goods sectors, valuations reflected the new normal of economic growth though some niche sectors still benefitted from double digit growth outlook,” said Gregory Garnier, Bain partner in the Middle East. “Meanwhile, in the healthcare sectors, ongoing privatization efforts opened many investment opportunities. In this new context, investors need to sharpen their pencil on deal sourcing, apply tighter due diligence approaches and manage portfolio companies with stringent value creation approaches. They can no longer wait for an offering to arrive on their doorstep and then react at the same time as the rest of the crowd.”

According to MacArthur, when deals do materialize, they command high prices.  And with an expected hold time of about 5 years, the margin of error for generating alpha and delivering acceptable returns to LPs has greatly narrowed.  In response, GPs are codifying their battle-tested approaches – what they are good at, what has and has not created value, and where and how their funds have made money for investors – to build playbooks that consist of detailed, sequenced actions taken over time to maximize value from each investment.

In 2016, capital continued to pour into the PE industry, making it the fourth year in a row for solid fund-raising.  In line with demand over the past several years, PE firms globally raised $589 billion in capital, just 2 percent less than in 2015, aided by a surge of 11 mega-buyout funds—those raising more than $5 billion— that closed to raise $90 billion.

But could this be as good as it gets? Many GPs are apprehensive that the industry cannot sustain the torrid pace of fund-raising for much longer. Bain expects that distributions will continue to outpace contributions and LP commitment to the PE asset class will stay strong. However, the fund-raising environment may not be as favourable in coming years, making it important for GPs to focus on what makes them stand out from the pack. 

Posted by : Dubai PR Network Editorial Team
Viewed 1867 times
PR Category : Banking & Investments
Posted on : Wednesday, April 12, 2017  10:57:00 AM UAE local time (GMT+4)
Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of DubaiPRNetwork.com.
Previous Story : Dubai Courts tasks ‘Taaheed' Offices to take charge of proce...
Next Story : New IBPC Board Announces Plans to Help Boost India-UAE Strat...
Email this article Print this article

Share this article with your friends and followers
NewsVine
Back to Section Home

Related Stories



 
 
Most Viewed Press Release posted in the last 7 days
Michael Kors Launches Capsule Kaftans and Handbags for Middle Eastern Markets [15958-Views]
Wake Up to Healthier, Hydrated Nails: Sally Hansen Launches Moisture Rehab™ Overnight Nail... [14414-Views]
Kérastase Paris launches natural and luxurious Aura Botanica line in the GCC [11480-Views]
Wellbeing Medical Centre - ULTRAFORMER III Best and latest Anti-Ageing treatments [11035-Views]
LG captivates the imagination of the MEA design community with revolutionary OLED signage [11017-Views]
Finally a Body that fits you! Cryolipolysis Fat Freeze [10510-Views]
Sandro Announces Expansion within The Middle East [10163-Views]
Performance for the passionate: Nikon D7500 is ready to exceed expectations for photograph... [9717-Views]
New York-Based Urban Artist creates masterpiece at Shoeciti in Dubai [8278-Views]
Middle East and African beauty and personal care market to grow to US$34.5 billion by 2021... [7759-Views]
Introducing JOHNSON'S® NEW Vita-Rich range with Cocoa Butter [7710-Views]
Dubai Design & Fashion Council Launches DDFC Membership to Support Sustainable Development... [7436-Views]
Volume Reveal mascara Ultra Black Collection [7338-Views]
Chloé eyewear introduces the new "Nola" sunglasses collection [7320-Views]
IKEA Introduces Limited Edition ‘Art Event 2017' Contemporary Drawing Collection [7290-Views]
COÉGA Sunwear Teams Up With GO Sport on Exclusive SS17 Swimwear Collection [7277-Views]
Doha Bank Re-ignites Qatar's Property Market with New Loan Offer at 3.99% with 12 Months P... [6734-Views]
Ulysse Nardin Marine Regattav [6466-Views]
Win up to 30 Kilos of Gold in 18 Days at Malabar Gold & Diamonds [6374-Views]
du Football Champions awarded Gold for its successful engagement of UAE youth [6374-Views]
New INFINITI Q60 sports coupe: designed and engineered to perform [6277-Views]
Sheikh Khalid Al Qassimi Steers Peugeot 3008DKR to Victory [6246-Views]
Interstuhl launches VINTAGEis5 chair in the GCC [5960-Views]
Al-Futtaim Motors launches the UAE's first hybrid truck [5899-Views]
Nautica Spring 2017 Collection [5801-Views]
 
RSS Facebook Twitter LinkedDin
 
Top Sections
 
Top Stories