PE exit activity slowed in the first half of the year, pushing the inventory of PE portfolio companies to an all-time high, according to a recent report by PwC.
In June there were more than 9,600 U.S. PE-backed portfolio companies, a 78 percent increase since 2009, the report said. Almost 40 percent of the current PE company inventory dates back to 2014 and prior, showing that firms are holding assets well over the traditional time frame of three to five years, according to PwC.
In part, this increase in inventory is a byproduct of fewer exits. The number of PE exits fell to 371 in the first half of 2019, a 38 percent decrease from the same period last year, PwC said.
Some PE firms have also been exploiting exits through IPOs, according to the report. Q2 2019 represented the largest value of IPO activity in the past five years, according to PwC.
“The fact that the IPO market is relatively robust allows optionality and often times PE firms dual track an IPO process with a sale process,” Cristinzio said.
Volume of PE deals fell 8 percent and the value remained flat in the second quarter, compared to Q2 2018, according to the report.
However, this number will likely change as some transactions may be due to close in the coming months, Andrew Cristinzio, partner and U.S. private equity sector leader at PwC, told Buyouts.
“I think we will see sell-side activity robust and potentially secondary sell-side activity,” Cristinzio said.
Factors that will continue to drive buy-side activity include strong fundraising and an accelerating number of PE players, Cristinzio said.
Secondary buyouts, or private equity to private equity sales, have also picked up in volume and continue to outpace corporate acquisitions of PE-backed companies, according to PwC. SBOs comprised 55 percent of all PE exits in Q2 2019.
Technology investing continues to be a cross-sector trend, PwC said. Whether it’s an industrial, health services, or retail transaction, technology is underpinning them all, Cristinzio said.
“I think those trends are going to spark interesting transformational transactions and interesting add-ons of transformative assets.”
Action Item: Access full Private Equity Deals Insights, Q2 2019 report here.