Private Equity Still Holds 72% of Companies Purchased in 2006
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Private Equity Still Holds 72% of Companies Purchased in 2006

The latest private equity research from Preqin indicates that private equity firms are still carrying many portfolio companies purchased during the record breaking “buyout boom” period of 2006 to 2007, with just 28% of deals made in 2006, and 19% of those made in 2007, having been fully exited.

Private equity firms typically look to hold portfolio companies for 3-5 years in order to add value and then make a profitable exit for their investors, but the fact that many transactions made in 2007 and earlier are still not sold suggests that many firms active during this period have held onto investments longer than intended. This is partly explained by the fact that 2006 and 2007 saw an aggregate $1,308 billion worth of private equity-backed buyout transactions – significantly higher than the aggregate value of all buyout transactions made from 2008 through year-to-date 2012 combined; however, it also highlights the negative impact of sustained financial market turmoil on the ability of private equity firms to exit investments.

Despite challenging conditions, buyout fund managers have made exits whenever favorable market opportunities have arisen. For example, Q2 2011 alone saw approximately $130 billion worth of exits – a record quarter for the industry.

“Many buyout fund managers were extremely active deal-makers in the years preceding the financial crisis, with record levels of buyout activity registered during the 2006-2007 ‘boom era’. For much of the period since, however, we have seen sustained periods of unfavorable exit conditions, and we have consequently witnessed some portfolio companies being retained for longer than originally intended to ensure that attractive returns can be provided to limited partners,” said Manuel Carvalho, Manager – Private Equity Deals.  “Investors in funds from this era can be reassured by the fact that private equity firms are making the most of any exit opportunities provided to them, such as in Q2 2011 when $130 billion worth of exits were made, so limited partners will begin to see further distributions as soon as conditions are favorable enough for private equity firms to sell at the right price.”

Other facts from the Preqin research include:

  • 11% of companies still held by private equity firms were purchased in 2006, while 14% were purchased in 2007.  Investments made prior to 2006 represent 16% of the total number of portfolio companies currently held, and account for a significant 14% of the aggregate value of all deals yet to be fully exited (by initial value).
  • 55% of currently held portfolio companies are based in North America. Europe accounts for 32%, and Asia and the rest of world makes up 13% of the number of deals yet to be fully exited.
  • North American portfolio companies represent 60% of the aggregate value of currently held deals (by initial value), while 30% of the value is made up by Europe-based deals and 9% by Asia and the rest of the world-based companies.
  • 29% of the companies currently held by buyout firms operate in the industrials sector, while the value of these investments stands at 18% of all currently held portfolio companies.
  • 16% of current holdings by private equity firms are in the consumer and retail sector, representing 18% of the value of active portfolio companies globally.
  • The smallest proportion of active deals date from 2009, with less than 9% of all current portfolio holdings coming from transactions made during that year, which is due to the relatively small number of deals made in 2009 as a result of the financial crisis.

The full report from Preqin can be downloaded by clicking HERE.

© 2012 PEPD • Private Equity’s Leading News Magazine • 8-21-12

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