Technology emerged as a bright spot for private equity investments in 2016 as overall deal volume declined, according to PitchBook.
Last year saw 3,538 PE transactions completed in the U.S., valued at $649 billion. The figures represent drops of 14 percent in the number of deals and 12 percent in value, PitchBook said in its 2016 annual report, “US PE Breakdown.” The private-market financial-data platform attributed the falloff to an expensive M&A market and a lack of quality acquisition targets.
Tech posted a record year in 2016. PE firms through the fourth quarter invested about $160 billion in 567 tech companies. This represents a quarter of total private equity value and was the highest amount invested in the tech space in the past 15 years, PitchBook said. Not counting Dell’s $60 billion deal for EMC, PE investments in tech grew 11 percent year over year, PitchBook said.
Energy deals were up in 2016. PE investors acquired $55.8 billion of energy companies last year, up 31 percent from 2015. Investors, PitchBook said, are getting used to $50-a-barrel oil. The gap between energy buyers and sellers has also narrowed, PitchBook said. The inauguration of Donald Trump, who became the nation’s 45th president on Jan. 20, also heralds well for energy, PitchBook said.
“Lastly, all signs from the incoming administration point to deregulation in the industry, which could spur a new wave of investment activity,” PitchBook said.
New issues suffered in 2016, turning in their worst year since the financial crisis. Just 32 private equity-backed IPOs were done in 2016, the fewest since 2009, PitchBook said.
The Seattle data company attributed the dearth of IPOs to the poor stock market of 2015, which was the worst since the downturn. This caused many companies planning on going public in 2016 to delay their deals, the company said.
Plans were put back in place only during the first two quarters of 2016, when the markets recovered. This resulted in 21 of the 32 PE-backed IPOs occurring during the second half of 2016, PitchBook said.
Exits were down in 2016. Last year saw 1,097 PE-backed exits totaling $316 billion, PitchBook said. This compares with 1,338 exits in 2015, valued at $406 billion. That shows declines of 18 percent in exits and 22 percent in value.
Dylan Cox, a PitchBook analyst, said in a statement that he’s grown suspicious about the quality of PE portfolio companies.
“A huge number of companies are sitting in private equity portfolios today, yet exit activity continues to dwindle despite the relatively high-valuation environment,” he said. “The fact that private equity firms aren’t bringing these companies to market tells us the quality may be lacking.”
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