Private equity sees resurgence this year – Bain report

According to the 14th annual Global Private Equity Report, released on Monday by consultant Bain & Co., global private equity is poised for a resurgence this year after a mid-2022 deal slowdown.

The Bain report said the weakness in private equity in the second half of 2022 was driven by economic turmoil and higher interest rates imposed by central banks in response to rising inflation.

Now, despite the sharp decline in the number of transactions, the value of transactions and fundraising in 2022, the fundamentals of private equity are still strong and resilient, according to a report by Bain, which, among other things, mentions that there are about 3 in the sector. $7 trillion in dry powder form. ready for deployment.

The Bain report also notes that despite the difficulties faced by private investment at the end of 2022, last year was still the second-biggest year in private equity history.

After recording a record $1 trillion in completed deals in 2021, the report notes that the figure has fallen by about 35% to $654 billion in 2022. The total number of transactions decreased by 10%: last year there were about 2318 transactions.

The report notes that global fundraising in 2022 fell 10% to about $1.33 trillion from the previous year due to “deteriorating conditions and confidence.” However, Bain added that the total fundraiser in 2022 was still “the second largest ever.”

The drop in activity and transaction value in the second half of 2022 was particularly pronounced in the Asia-Pacific region due to market closures caused by COVID-19 restrictions.

The Bain report also found that banks’ reluctance to lend to large leveraged deals since mid-2022 has also dampened deal-making activity. Indeed, in the US and Europe, leveraged loans fell 50% to $203 billion last year. As a result, the private equity industry has seen a reduction in the large, highly leveraged deals that have supported deal value for years. Thus, the average deal size decreased by 23% in 2022 to $964 million, after a constant increase since 2014, when it hit an all-time high of $1.2 billion in 2021.

Bain noted that trade exits also plummeted in 2022. Buyback-backed exits fell 42% to $565 billion in 2022, while exits from growth stocks fell 64% to $312 billion. This decline reflected “the complete shutdown of the IPO market amid a sharp drop in public shares, as well as a 58% reduction in sponsorship transactions,” the release notes.

In addition, the report notes that private equity could become even more attractive to investors frustrated by the relatively weak performance last year in both the public equity and debt markets.

Bain also noted that despite the market turmoil of 2022, the current economic climate is different from the global financial crisis of 2007-2008, when the banking system nearly collapsed.

“There has been a continued slowdown in activity this year so far, but the long-term attractiveness of private equity for investors is assured,” said Hugh MacArthur, chairman of the global private equity practice at Bain, in a press release released alongside the report. “With deal activity starting to pick up in 2023, the industry is still well positioned for long-term growth.”

Mr MacArthur added: “There is undeniable uncertainty in the global market, but this is something private investment has faced and overcome before.”

The Bain report indicated that the industry’s top players will continue to find deals they can guarantee and will remain aggressive.

“Despite the apparent disruption in the markets, deal makers can adjust to deals that work in a variety of environments,” Rebecca Burak, head of international private equity at Bain, said in a press release. “The best will do just that, even at lower activity levels overall. Winners will stay close to their verified gold points. Critical to their success will be closing deals where their experience and confidence are highest. We have seen from past deployment periods that investors who follow this strategy are making very high returns, so staying in the game is important for all stakeholders in the industry.”

The Bain report also says that individual investors, who account for half of the world’s asset wealth, are likely to help boost private wealth growth. Bain found that individual retail investors own between $275 trillion and $295 trillion in global assets, but only 16% of that capital is owned by alternative investment funds. Thus, retail investors represent a vast, largely untapped market for wealth managers.

In the report, Bain concluded that “amid the short-term gloom, there is nothing to indicate that the long-term outlook for private equity is less positive than in 2021.”

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