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Private equity activity slows in Q3

11 Nov 2011

Private equity activity experienced a slowdown during the third quarter of 2011, according to research from the US’ Private Equity Growth Capital Council (PEGCC).

As of September 30, 2011, its Private Equity Index (PE Index) registered at 88.6, which is below its ten-year moving average of 100. The index declined almost 17 points, compared to the revised level of the previous quarter.

The fall was primarily driven by a decrease in volume of private equity-backed investment and exits, it found.

For the quarter, global private equity investment fell to $58bn from $67bn in the previous quarter. Equity contributed by sponsors in leveraged buyout deals increased to 39 per cent from 37 per cent. In addition, commitments to global buyout funds fell slightly to $23bn from $25bn.

Dry powder for buy-out funds declined below 2007 levels, at $385bn as of October 2011. US private equity exits fell to $21bn, down over 50 per cent from the previous quarter.

“The drop in the PE Index in the third quarter reflects trends in the larger economy. In particular, lower exit volumes – and especially from IPOs – reflect the volatility and uncertainty in public markets, which impacts valuations of portfolio companies and the exit environment,” said Bronwyn Bailey, PEGCC vice president of research. “We expect that with greater certainty in financial markets, private equity activity will rebound to pre-recession levels,” Bailey concluded.

Designed to provide an accurate snapshot of the state of the private equity market at any given point in time, the index is a composite measure of global private equity activity based on three key factors: the dollar value of total private equity-backed investment, fundraising, and exits (portfolio company IPOs or sales to corporations or other investors).

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