Private equity deals insights: Q1 2019

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Executive summary

In 1Q 2019, deal flow for US Private Equity (PE) firms declined sharply in volume and value, by 27.9% and 26.7%, respectively, compared to 1Q 2018. Despite there being over $1.2 trillion of dry powder in North America (including venture capital), high valuations and intense competition for individual assets has had an overall negative impact on deal activity. Further, concerns around a potential recession and geopolitical issues like Brexit and US-China trade policy are likely creating headwinds for deals getting done.

Take-private and other alternative transaction structures continue to provide an opportunity for private equity funds to put larger amounts of capital to work. We’ve seen an increasing trend in take-private transactions during 1Q 2019 fueled by mega funds looking to deploy capital. Stock market volatility, fears associated with increasing interest rates which could dampen multiples, and shareholder activism could all further bolster activity in take-private transactions.

Fundraising remained strong with $46 billion raised during 1Q 2019, and is on pace to slightly underperform relative to 2018. With record levels of capital to deploy and firms continuing to raise larger funds, PE firms will have to develop a robust investment thesis that pulls on the full suite of value creation levers to differentiate themselves.

“In the first quarter, despite a decline in deal volume and value, private equity deal activity continues to benefit from an abundance of capital and still favorable credit markets.”

Andrew Cristinzio, US Private Equity Sector Leader

Trends and highlights

  • Both deal volume and deal value are off to a slow start in 2019. Volatile markets in 4Q 2018 had lingering effects on deals closing in 1Q 2019 as deals typically take 12-16 weeks to close.
  • Despite lower activity in 1Q, other factors continue to point to a strong deals environment. Markets stability returned in 1Q 2019, valuations remain elevated, and private equity firms continue to have significant un-invested capital.
  • Q1 saw an uptick in take-private transactions. Take-private transactions are becoming more attractive for private equity firms with the growth in fund size and large amounts of uninvested capital. Additionally, recent contraction in equity markets makes multiples on public deals more attractive.
  • With continued elevated multiples in the market, private equity firms are continuing to focus on add-on transactions which accounted for 71% of deals in 1Q.

 

Contact us

Andrew Cristinzio

Private Equity Leader, PwC US

Scott Gehsmann

Private Equity Assurance Leader, PwC US

Puneet Arora

Private Equity Tax Leader, PwC US

Eric Janson

Private Equity Advisory Leader, PwC US