Private Equity Report
New Report on Private Equity - Key Findings
The World Economic Forum has released a report based on data gathered from private equity activity in 21,000 firms from 1970 to 2007. This private equity report is nearly 200 pages and provides an extensive overview of how private equity has changed over recent decades. While it's difficult to summarize such a large report, it does provide the key findings. Today, I am mostly focusing on the important findings in buyout activity (LBOs especially), private equity trends and exit strategies:WEF Private Equity Report 2008
- Private equity activity has dramatically increased over recent years. Almost 40% of private equity activity occurred from January 1, 2004, of the 37 years included in the study. The total value of firms acquired through leveraged buyouts is estimated in the study to be about $3.6 trillion, and $2.7 trillion of those transactions occurred between 2001 and 2007.
- While a lot of media and public scrutiny centers around the public-to-private transactions, this activity only accounts for 6.7% of total transactions. Instead, the majority of transactions involve acquiring private companies and corporate divisions. (I wonder if private equity will use this to combat negative attention toward private equity over public-to-private buyouts?)
- Leveraged buyout activity takes place predominantly in Western Europe and the United States, with only 9% of the total value of global LBOs happening outside these areas. However, there is an increasing amount of private equity activity taking place beyond Western Europe and the U.S. as other regions warm up to the private equity industry.
- Research into private equity exit strategies revealed that 39% of exits are through trade sales to another corporation, making it the most common exit strategy. Following with 24% was exits through secondary buyouts and only 13% of private equity investments took the exit route of an Initial Public Offering.
- Private equity investors seem to favor long term investments with 58% of private equity investments' exits occurring after 5 years from the initial transaction. The last few years have seen a decline from "quick flips" (exits after only 2 years or less from the initial transaction) from the already low 12% of private equity deals. I would not be surprised if the bias toward long term investments increases even more in the next couple years as investors are drawn toward more stable investments amid the financial instability.
- Another key finding was the big increase in companies backed by- and operating under private equity ownership. The number of firms entering LBO status has outpaced the number leaving LBO status so a steady margin has formed; 14,000 companies were held in LBO ownership as of 2007, compared to just 5,000 in 2000 and 2,000 in the mid-1990s. Also, the length of time that these companies are held in LBO status has increased.
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http://privateequityblogger.com/2008/10/private-equity-report.html