Private equity deals insights: Q2 2018

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Executive summary

As we reach the midpoint of 2018, we find ourselves 10 years into the latest M&A cycle, which has been characterized by sustained high levels of private equity (PE) deal activity. Overall economic growth and availability of credit have been tailwinds throughout the cycle, as has an increasing allocation of investment dollars into private equity from limited partners, leading to successful fundraising for those with established track records.

Record dry powder continues to drive fierce competition for limited assets among private equity funds, which has kept valuations elevated over a prolonged period. High entry valuations have led to PE investors increasing their focus on value creation and innovative deal sourcing and structures to generate desired returns.

While we note that there are risks in the mid and long term due to a cyclical economic slowdown or other geopolitical risk factors, we expect to see continued strong PE deal activity through the rest of 2018 due to the current availability of capital. We saw an increase in corporate carve out activity by private equity in 1H 2018, as a result of activist pressures and changes in corporate strategy. We could see a further increase as corporate mega deals like AT&T Time Warner clear regulatory hurdles, and generate more divestitures of non core assets.

Trends and highlights

  • Deal volume increased modestly by 2% over 1H2017, driven by an increased level of portfolio company add on transactions, and hotter sectors including technology and healthcare offsetting slower deal activity in other industries.
  • Deal value trended downward in 1H 2018, however this does not reflect the activity of deals announced but not closed in the period, of which there were a number of mega deals and carve outs.
  • After record fundraising in 2017, 1H2018 fundraising is off to a slower start, but record levels of dry powder remain available.
  • There are almost 8,000 US private equity backed companies as of June 2018, of which more than one third were acquired five or more years ago. We have seen an increase in secondary buyouts by PE, and expect this trend to continue.

“As we enter the second half of 2018, we expect to see a continuation of the competition for deals that marked the first half. We see specialization and scale as two key trends among private equity investors.”

Andrew Cristinzio, US Private Equity Sector Leader

Contact us

Andrew Cristinzio
Private Equity Leader, PwC US
Tel: +1 (703) 918 1474
Email

Scott Gehsmann
Private Equity Assurance Leader, PwC US
Tel: +1 (646) 471 8310
Email

Puneet Arora
Private Equity Tax Leader, PwC US
Tel: +1 (646) 471 1691
Email

Eric Janson
Private Equity Advisory Leader, PwC US
Tel: +1 (214) 754 4560
Email