In Q1 ’18, US Private Equity (PE) sponsors remain cautious in executing deals for new platform companies as valuations remain elevated, despite the abundance of dry powder. Therefore, PE deal activity declined in the first quarter of the year, with pockets of increased activity found in add-on deals for existing private equity portfolio companies, as well as increased carve out activity.
Following a sustained period of growth, fundraising sharply declined in the first quarter of 2018. The beginning of the year saw $36.6 billion of capital raised across 55 funds, marking a 34% decline in funds raised by value compared to Q1 ‘17. However, enthusiasm and appetite from LPs is still strong as many have increased their allocations to PE, but have been spreading capital across fewer funds. Larger funds continue to attract more than half the capital raised in the quarter.
The search for quality assets will continue to expand globally, with some potential effect of tax reform. Additionally, PE sponsors will focus on their portfolio companies to get ready for exits in a period of high valuations. Accordingly, deal team resources have seen a shift toward finding the right add on opportunities to leverage the natural multiple arbitrage available for add-ons, as well as cost savings opportunities.