US deal volume increases by 56% in Q4(2)

Sellers’ concerns with proposed increases to the capital gains rate may have led to a spike in US private equity deal activity during the fourth quarter.

US private equity deal volume rose to $102 billion during the fourth quarter, a 56 percent increase over the previous quarter, according to a Private Equity Growth Capital Council report. 

“The reason deal volume went up last quarter … is the expectation that tax rates might have gone up on capital gains at the start of the year,” PEGCC vice president of research Bronwyn Bailey told Private Equity International. “There was a lot in the pipeline, some of which was opportunistic, some of which was timing.”

More specifically, sellers may have been concerned with proposed changes to the capital gains rate that would take effect in 2013, increasing tax obligations on sale of assets. Prior to New Year’s, many speculated that Congress and President Barack Obama would include a capital gains tax hike in a deal to avert the fiscal cliff. 

That deal, signed by President Obama in January, raised capital gains tax rates for high-income individuals from 15 percent to 20 percent.  

Despite the quarterly improvement, overall US deal volume fell by 13 percent in 2012. Private equity invested $313 billion across 1,807 deals last year compared to $359 million across 2,106 deals in 2011. 

The PEGCC report also included information on US exit volume, which jumped by 92 percent from $29 billion in the third quarter to $55 billion in Q4. The fourth quarter increase led to an 8 percent improvement on 2012 exit volume compared to that of 2011.  

An improved exit market may have helped US firms seeking fresh capital from investors. US funds raised $113 billion last year, a 30 percent improvement over 2011’s $87 billion total.