Private equity buyouts as a proportion of M&A have declined for the third consecutive year, as have leverage buyouts valued at $1 billion or more, according to a study by S&P Capital IQ.
LBOs comprised 3.4 percent, or $1.8 trillion, of overall M&A for the year, down from 5.7 percent in 2014. This is the third consecutive annual decline. There have been 13 mega LBOs to date in 2015, compared with 28 last year.
“The paradox is there’s so much cash available in terms of dry powder, so [financial] sponsors have the resources to do more transactions, but I guess there’s reluctance,” Rich Peterson, the report’s author, told Private Equity International. “Perhaps the multiples being paid aren’t attractive in this environment or they are just waiting for better opportunities.”
His research found that there is almost $500 billion of available capital in global buyout funds waiting to be invested.
Peterson, senior director of global markets intelligence at S&P Capital IQ, cited fund sponsors taking a “more targeted and more selective” approach as one possible reason for the lack of mega deals in private equity.
But with recent deals by KKR and The Carlyle Group, there’s a possibility for a rebound, he said.
“I think there’s hope that we’ll see a resurgence for another big deal,” he said.
PE funds reluctant to delve back into buyouts could find consolation in separate research published this week by State Street Corporation. Its second-quarter results of the GX Private Equity Index found that buyouts performed the best in PE with a 4.67 percent return and capital distributions of over $52.5 billion, more than twice the total capital drawdown.
The index measured PE investments totalling more than $2.2 trillion through 2,492 unique partnerships as of 30 June.