First-quarter private equity M&A slowed sharply

It wasn’t your imagination: First-quarter private equity M&A was very slow.

The quarter saw 874 global PE-backed buyout deals valued at $44 billion, according to data from Preqin. The deal number fell 3.3 percent and the value sank 57 percent from the year-earlier period, when 904 deals totaled $101 billion, Preqin said.

The first-quarter number of deals fell 9.1% and the value declined 68 percent compared with fourth-quarter 2015, when 962 deals valued at $137 billion were done, Preqin said.

U.S.-announced private equity deals show a slightly different story. The number of deals dropped 24 percent but valuations rose 23 percent, according to data from Thomson Reuters. In the first quarter, 193 U.S.-announced PE transactions valued at $17.7 billion were done, compared with 254 deals that totaled $14.38 billion for first-quarter 2015, Thomson Reuters said.

Overall U.S. M&A deal value plunged 38 percent to $245.7 billion, Thomson Reuters said. The number of mergers fell 24 percent to 1,999.

Much of the high valuation in Q1 came from one deal: In February, Apollo Global Management agreed to buy ADT Corp in a deal Thomson Reuters valued at $12.27 billion.

Apollo plans to merge ADT with its portfolio company Protection 1, Thomson Reuters said. Both TR and Preqin rank Apollo’s buy of ADT as the first quarter’s biggest deal.

If the ADT deal is pulled out of the first-quarter numbers, the disclosed value fell 62 percent from 2015, said Matt Toole, director of deals intelligence at Thomson Reuters. That’s even worse than Preqin’s conclusions.

Credit-market woes, broader volatility

Many have attributed the Q1 slowdown to problems in the credit markets and broad market volatility. “It was a really bad first quarter in the financing markets,” a private equity executive said.

High prices demanded in auction processes with heavy competition from strategics caused private equity to stand on the M&A sidelines in 2015. That hasn’t really changed this year. “Strategics are still there with lots and lots of capacity,” the GP said.

The slowdown in PE M&A affected all industries, one healthcare banker said. “Most people viewed it as temporary so they could wait it out,” the banker said. “There was no need to go ahead and do things.”

Of the deals done in Q1, 59 percent were small and valued at less than $100 million, Preqin said. More than a third, or 37 percent, of the Q1 PE deals were add-ons/mergers, Preqin said. Less than half, or 41 percent, of Q1 transactions were leveraged buyouts.

Large LBOs, those valued at more than $1 billion, accounted for 7 percent of the total number of deals but represented 56 percent of the total deal value, Preqin said.

Action Item: See the Preqin data:

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