Equity everywhere

Money being made in private-equity deals, on a relative basis, took a sizable dip in 2016 over the previous two years, according to the latest Bain & Co. Global Private Equity Report.

But the 2016 total, $328 billion from 984 deals worldwide, is up from the earlier years of the decade and is the fourth-best year ever by value. “While not hosting quite the blowouts of 2014 and 2015, the PE industry wrapped up another strong year for exits in 2016,” the report states.

In addition to a smaller overall pot, buyouts are taking longer to happen, with the holding period rising to about five years, up from the historical average of about 3.5-4 years. Bain analysts expect this trend to continue, given high purchase prices, limited sources of market buyers and other factors. “As asset valuations pushed steadily higher,” the report states, “PE funds are finding it tougher to find and close good deals at prices that will generate satisfactory returns.”

Private-equity investors, says Hugh MacArthur, head of Global Private Equity for Bain, are only going to get pickier. MacArthur, for example, cites data that shows private equity firms believe less than 20% of potential deals are relevant to the firm's goals and strategy.

Despite the lingering issues, the future of the industry has more good than bad, Bain analysts project. “With investors everywhere on the hunt for yield,” the report states, “private equity remains a favored asset for institutional investors who have the patience for longer-held bets.”