Private Equity Trend Report 2019

Mergermarket is pleased to present the Private Equity Trend Report 2019 published by PwC, the 13th annual survey on current developments in German and international private equity investment.

With the backdrop of a year in 2018 where global deal volumes reached an all-time high, valuations rose to at least pre-crisis levels and the amount of dry powder continues to grow seemingly indefinitely, it is worth standing back from the euphoria and taking stock of the underlying fundamentals and dynamics of this industry whose progress appears relentless.

As the consistently best performing asset class, it isn’t surprising that private equity continues to attract fresh capital. In the low interest environment, LP’s are seeking to deploy their funds at even higher levels within the industry, both through higher commitments as well as increasing direct co-investments. With broadly stable debt to equity ratios, this presents a significant challenge as proportionally less of the equity cheque comes from the fund, meaning that the GP’s have to work even harder across more deals to deploy their capital.

The funds are therefore continuing to further diversify into credit, real estate and infrastructure. The larger funds are even creating more strategic funds with lower returns but longer holding periods, as well as parallel funds addressing lower or mid-cap sized transactions – all is driven by the immense levels of capital available.

As noted in our trend reports over recent years, and this one is no exception, the high multiples driving higher entry prices result in value creation requiring much more operational involvement over a longer holding period. GP’s are therefore having to diversify, upskill as well as increase the headcount of their deal professionals, another challenge in a fast maturing market that is adapting to the impact of digital and AI to name just two major recent influences on investment decisions.

And although on the face of it there are reasons to exercise caution heading into 2019, the fundamentals of the PE market not only remain intact but also continue to evolve. Record dry powder, driven by investors’ desire for exposure to the asset class’s public market outperformance, means that funds are fully equipped and are primed to transact. Private equity has always proved resilient in adapting to an ever-changing world, with the aforementioned factors continuing in the face of an asset scarcity driving further competition. The challenges are clear, however, the track record of both performance and adaptability bodes well for another successful year.