Private equity-backed buyout deals and exits drop in Q4 2011

Amidst tightening credit conditions and a reluctance from fund managers to invest in the current climate, deal and exit flow will continue to be subdued in coming months.

Preqin said:

Preqin’s quarterly deal flow data shows that there were 624 private equity-backed buyout deals in Q4 2011, valued at a total of $56.7bn – an 8% decrease from Q3 2011. Q4 2011 saw 212 exits valued at $41.2bn, representing a 27% fall from the $56.3bn of exits in Q3 2011.

However, it is important to note that deal and exit flow are up 18% and 33% respectively as a whole in 2011 compared to 2010.

Global Statistics:
• The 624 deals valued at a total of $56.7bn in Q4 2011 also represents a lower level of activity than in the same period last year, which saw 703 deals with a total value of $69.1bn.
• The total number and aggregate value of deals in 2011 were 12% and 18% higher respectively than in 2010, increasing from 2,450 deals valued at $218.4bn, to 2,751 deals valued at $258.2bn.

Deals by Region:
• The aggregate value of deals in North America increased slightly from $28.4bn in Q3 2011 to $29.5bn in Q4 2011. In 2011 as a whole, there were 1,469 deals in North America valued at $122.7bn, up from 1,264 deals valued at $117.6bn in 2010.
• At $15.6bn, the aggregate value of deals in Europe in Q4 2011 was 37% lower than the $24.9bn recorded in Q3, and less than half the $33bn seen in Q2. Aggregate deal value in 2011 as a whole was $95.4bn, a 34% increase on the $71.4bn seen in 2010. The number of deals in the region also increased by 7%.
• The aggregate value of deals in Asia and Rest of the World was $11.6bn in Q4 2011, 43% higher than the $8.1bn seen in Q3 2011. In 2011, the aggregate deal value increased by 36% to $39.9bn, up from $29.4bn in 2010.

Deals by Type:
• Leveraged buyout deals represented 40% of the total number of deals in 2011, down from 47% in 2010, but accounted for 56% of aggregate deal value, up from 53% in 2010.
• The proportion of growth capital deals fell from 20% in 2010 to 14% in 2011, but the fall in their share of aggregate deal value was less pronounced (7% in 2010 vs. 6% in 2011).
• The proportion of add-on deals increased significantly, from 23% in 2010 to 36% in 2011. As a proportion of aggregate value, they increased their share from 7% to 13%.

Deals by Value and Industry:
• In 2011, deals valued at less than $100mn accounted for 55% of the total number of deals.
• Deals valued at over $1bn represented 47% of the aggregate value of deals in 2011.
• A quarter of the total number of deals and a fifth of the global aggregate value were in the industrials sector.

PE-Backed Exits:
• The global aggregate value of exits in Q4 2011 was just a third of the $124.5bn recorded in Q2, and half the $82.5bn seen in Q4 2010.
• Despite a continuing fall in global aggregate exit values since Q2 2011, the year as a whole saw the highest aggregate exit value on record, with $302.5bn of exits.
• This was due primarily to the value of exits recorded in Q2 2011 which, at $124.5bn, was 51% higher than the previous record of $82.5bn in Q4 2010.

Due to the prevailing uncertainty surrounding the European sovereign debt crisis and its impact on global credit conditions, Q4 2011 has seen a slowdown in PE-backed deal and exit flow, with decreases of 8% and 33% respectively from Q3, representing the second successive quarter of declining deal and exit flow. Interestingly, the fall in deal activity in Q4 2011 was primarily caused by the decrease in Europe, the only region to register a fall in aggregate deal value, which was down by 37% from Q3.

It is likely that deal and exit flow will continue to be subdued in coming months, with tightening credit conditions and a reluctance from fund managers to invest in the current climate leading to a slowdown in activity.

However, it is important to note that despite this decline in Q4 2011, deal and exit flow in 2011 surpassed the previous year, including a post-Lehman high for deal flow and an all-time high for exit activity in Q2 2011, as private equity firms began to exit some of their investments made during the buyout boom-era of 2005-2007. This indicates that if confidence returns to the wider financial markets in 2012, we may witness a return to this level of activity again.