Dealmaking struggles to keep pace amid fundraising boom

Fundraising figures for this year are starting to resemble 2007; less so for transaction numbers.

Preliminary fundraising numbers for the third quarter are in, and it looks like private equity is on for another bumper year.

Private Equity International data show 129 funds held a final close in the three months to 30 September raising $83.3 billion between them. This compares with $74.6 billion raised by 142 funds in the same period last year.

A back-of-the-envelope calculation puts this year’s fundraising on track to be roughly on a par with 2007 when private equity funds collected a combined $481 billion, according to Cambridge Associates. That year was also when the previous ‘largest-ever’ private equity fund closed – Blackstone’s $21.7 billion Blackstone Capital Partners V, which has just been knocked off the top spot by the $24.7 billion Apollo Investment Fund IX.

As at 31 March, Blackstone Capital Partners V was delivering an internal rate of return of 8.39 percent, according to data from the California State Teachers’ Retirement System. It is unclear whether the figure is net or gross.

Private equity-backed M&A also boomed in 2007. Data from Dealogic show 3,392 transactions worth a combined $783 billion closed in the first three quarters of that year.

The same cannot be said for 2017; so far 1,623 transactions worth a total of $494 billion have closed.

Research from valuation firm Murray Devine showed in the first half of 2017 US private equity transactions commanded an entry multiple of 13.7x EBITDA, with an average debt multiple of 7.2x, a sign that cautious deal-doing may be commended amid valuations at an all-time high.

Dry powder continues to pile up: fundraising records have been broken across the globe this year, including CVC Capital Partners in Europe with its €16 billion CVC Capital Partners VIIKKR in Asia with its $9.3 billion KKR Asian Fund III and Apollo Global Management. Add to this SoftBank Vision Fund‘s $93 billion haul.

Sooner or later all that capital will need to find a home.