The vast majority (80%) of respondents to our survey believe private equity exit activity will either stay the same or increase over the coming six months, with a notable increase in expected portfolio realisations relative to our H2 2015 survey results. When asked which exit route they expected to be most popular, almost three-quarters of LPEQ members highlighted trade sales, with secondary buyouts and recapitalisations in the distinct minority.
80% of respondents to our survey believe private equity exit activity will either stay the same or increase over the coming six months
Reflecting a more cautious investment environment, 60% of respondents believe levels of private equity investment activity will stay the same over the next six months, with most believing that purchase price multiples will either stay the same (53%) or decrease (40%), presenting attractive buying opportunities for the sector in due course.
As global credit markets experience signs of stress, potentially marking a shift into a late stage of the cycle, the availability of debt for private equity-backed deals is expected to reduce; over the next six months, all respondents expect deal leverage to either stay the same or reduce relative to historical averages.
With regards to listed private equity specifically, managers remain optimistic, with over a quarter (27%) expecting shareholder demand to increase over the next six months and 60% believing appetite will remain constant in spite of this more challenging market backdrop. Managers highlight a potential reversal of the trend towards dividends in the listed private equity sector, with only 40% seeing evidence of increasing appetite for LPE companies to pay a dividend – down from 71% in our H2 2015 survey.
Douwe Cosijn, CEO of LPEQ, said, “Uncertainty in the macro-economic outlook and broader financial markets may impact activity levels. The outlook for realisations is supported by managers' confidence in the underlying performance of portfolio companies they are seeing in their investment portfolios or funds. New investment may stay largely the same as uncertainty in capital markets, which if compounded by liquidity concerns, may well impact confidence and deal pricing.”