Private Equity Exits Slow In Q4

Dec 15 2011 | 12:02pm ET

Global private equity exits have slumped so far in Q4 2011 and are unlikely to recover anytime soon given concerns over Europe’s sovereign debt crisis, reports the Preqin research company.

Preqin’s data shows 170 exits worth a total of $28.4 billion have been completed so far this quarter—that puts it well below Q2 2011, which saw 326 exits worth a total of $121.8 billion.

In fact, the total is the lowest quarterly total since Q1 2010. The value of private equity backed buyout deals completed globally had been steadily recovering up to Q2, before falling 20% in Q3. Even the number of deals, which Preqin says has historically been more resilient than the aggregate value during tumultuous economic periods, fell in Q3 2011—to less than half that of Q2—and looks set to fall further in Q4.

The numbers point to a recession in private equity-backed exit flow despite what Preqin calls a “fleeting, record-breaking renaissance in the first half of the year.”

Exits by type have varied over the past five years, although trade sales have remained the predominant exit route.

Exit activity in North America and Europe witnessed a peak in H1 2011, before dipping sharply in H2 2011 due to deteriorating market conditions. Asian exit value increased between H1 2011 and H2 2011.

Said Preqin’s Manuel Carvalho in a statement: “Exits are vitally important to the private equity fundraising market, as LPs require distributions from existing investments before making new commitments, in order to maintain their allocations to private equity. The falling number of exits is likely to be reflected in a continued fall in fundraising, sub-target fund closures and firms abandoning their fundraising efforts altogether.

“As long as market conditions remain difficult, we will continue to see a stagnant deal and exit market, as volatility in the public equity markets, and a higher cost of capital due to tightening credit conditions, has led to a subdued exit environment for fund managers.”

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