Tax News
PitchBook Issues its Much Anticipated PE Breakdown Report
January 20, 2011
Previewed in this space earlier this month, financial research firm PitchBook released its 2011 Annual Private Equity Breakdown this week.  In sum, the report is a mixed bag.   While the report touts a $50 billion 4Q 2010 PE investment figure (more than 4 times the amount invested in 4Q 2009 and more than 6 times invested in 2Q 2009 at the bottom of the economic downturn), it cautions about a $485 billion capital overhang (the amount of funds raised raised by PE funds that remain uncalled) as well as a portfolio company overhang (PE firms owned an all-time high 5,994 U.S. companies at the end of 2010).  While the capital overhang may be good news for businesses currently looking for capital, it is making fundraising difficult for PE funds, with only $10 billion of capital raised in 4Q 2010 (down from $26 billion in 4Q 2009).  According to the report, fundraising has lagged about one year behind deal flow in showing the effects of the financial crisis, and thus PitchBook expects 4Q 2010 to represent the  nadir, with a strong rebound in fundraising forecast for 2011.  The portfolio company overhang also poses problems for the industry as roughly a third of the companies have been held for more than 5 years and need to be exited to generate liquidity and returns for the funds' limited partners.

On the positive side, the report uses the disproportionately high number of larger deals (82 over $500 million--the third highest total on record) as evidence of increased availability of leverage, which PitchBook forecasts will continue to trend up in 2011.

Consumer products and service providers and B2B companies made up the majority of deal flow--53%--while materials and resources firms saw the largest pecentage increase of deals--57%--but still only comprised about 5% of the 2010 deal flow.

Although exits have slowed dramatically (the median holding period of 2007 exits was 3.48 years while the median holding period of 2010 exits was 5.09 years), exits more than doubled in 2010 over 2009.  The report notes a return to pre-crisis exit preferences with IPOs and secondary transactions (PE fund to PE fund) comprising a larger percentage of total exits than in 2009 (and a corresponding reduction in strategic (corporate) acquisitions as a percentage of total exits).

In sum, the report forecasts the positive trends reflected in deal flow to continue in 2011, but cites fundraising difficulty (especially in larger funds), investor liquidity, and accesss to leverage as ongoing issues that will bear monitoring.  The full report is available at http://www.pitchbook.com/The_Annual_PE_Breakdown_2011.html.
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Tags: investment fund performance, investment funds statistics, Pitchbook, Pitchbook private equity report, private equity performance, private equity performance 2010, private equity statistic