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Private equity: End of years of frustration

Private equity: End of years of frustration

Calmer conditions bring back optimism to the private equity industry.

  • min read


Private equity: End of years of frustration

This article originally appeared in The Business Times (Singapore) - subscription required.

After four frustrating years of false starts, nervous capital markets and deal-dampening volatility, the private equity (PE) industry has taken a sharp turn from uncertainty and worry to enthusiasm about the past year and optimism for the future.

A year of calmer macroeconomic conditions set the stage for PE's revival in 2013 and laid a foundation for further expansion in the year ahead. As we described in this year's edition of Bain & Company's Global Private Equity Report, PE investors profited from strong public equity markets and enjoyed the persistent low interest rates and accommodating debt markets the central bankers helped engineer. Exit channels opened up. New IPO issuance, follow-on offerings and dividend recapitalisations were robust, enabling general partners (GPs) to increase distributions to limited partners (LPs) as they cashed out a long pipeline of past investments.

As new money flowed back into their coffers, LPs were able to refresh their PE commitments, breathing life into GP fund-raising campaigns. With many of the once-troubled deals from the mid-decade boom years profitably sold and the valuations of unsold assets still in GP portfolios climbing, PE returns rebounded. The factors that helped make exits, fund-raising and returns flourish, however, also made 2013 a challenging year for deal making (see charts). They raised the floor on sellers' price expectations, making deals that did get completed more costly and pushing some deals out of reach of PE acquirers. The allure of IPOs also siphoned away companies that might have gone to auction, shrinking the pool of potential deals.

The signs of strength we spotted in late 2012 and discussed in Bain's 2013 private equity report fanned an upswing in GP and LP sentiment during the past year.

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