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.
“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.”
Private Equity Leader, PwC US
Tel: +1 (703) 918 1474
Private Equity Assurance Leader, PwC US
Tel: +1 (646) 471 8310