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Study: buyout-backed exits top $450bn in 2014

Bain report shows strong exit environment proved tough for buyers, with investment activity holding steady

Buyout-backed exits topped $450 billion last year as abundant capital in the hands of GPs and investors combined with plentiful cheap debt to create an optimal selling environment, according to Bain & Company's sixth annual Global Private Equity Report.

At more than 1,250 sales worldwide, 2014’s exit count surpassed its previous peak of 1,219 transactions in 2007, and was 15 percent up on the previous year’s figure. Total exit value, at $456 billion, was substantially higher than its previous record of $354 billion in 2007 and 67 percent higher than in 2013.

“Last year was undoubtedly the year of the exit, which raised the caution flag for many buyers,” Hugh MacArthur, head of Bain's global private equity practice and lead author of the firm's private equity report, said in a statement. “The surge in global liquidity and near zero-interest rates has inflated asset valuations and boosted acquisition multiples on private PE targets, which will make it more challenging to earn the same high levels of return going forward.”

Bain’s report found that exits via IPO were strong, particularly in Europe and the Asia-Pacific region, with buyout-backed IPOs doubling in both number and value in Europe and, thanks in part to the reopening of China’s IPO market, almost quintupling in value to $63 billion in the Asia-Pacific markets.

The strong exit climate made for a tough environment for buyers. Global buyout investment activity was up just 2 percent by count to 1,955 transactions and down 2 percent in value to $252 billion compared to 2013. Bain’s report estimates that there were almost 6,000 active private equity firms with $1.1 trillion in dry powder looking for acquisitions as 2014 began, and over the course of the year they “refilled their coffers faster than they could put capital to work”, resulting in a “mountain” of dry powder worth just over $1.2 trillion by the end of the year.

On fundraising, worldwide 1,001 private equity funds, 200 fewer than in 2013, secured $499 billion in new capital commitments in 2014, six percent less than the year before. However, Bain’s report attributes this modest drop to “the idiosyncrasies of the funds that happened to be in the market” rather than “a sign of weakness”. Only one fund exceeding $10 billion – $10.9 billion Hellman & Friedman VIII – closed last year, compared to five in 2013.

When it comes to returns, Bain’s report says a “cascade of capital is flowing to PE investors”, with Cambridge Associates data showing that through the first half of 2014 “nearly every major category of PE matched or exceeded the strong double-digit one-year gains racked up in 2013”. Buyout funds were up 23 percent and growth-equity funds were up 25 percent, with both categories gaining 24 percent in both the US and developed Europe. Emerging market-focused funds posted gains of five percent.

However, the report notes that private equity’s ability to outpace public market gains over the long term “can no longer be taken for granted”, and that the performance edge has “narrowed considerably for more recent vintage funds”.