Buyout deals backed by private equity funds in the first quarter reached their highest value, $97 billion, since the $125 billion worth of buyouts in the third quarter of 2007, according to alternatives data provider Preqin.
At the same time, private equity fundraising during the year’s opening quarter slowed. Only 151 funds closed, the lowest number of closures in more than a decade, Preqin reported.
Add-ons Surpass Leveraged Buyouts
Despite the active first quarter, led by the merger in March of Kraft Foods Group and H.J. Heinz Co., buyout managers around the world still had some $456 billion in unspent capital commitments, compared with $431 billion one year earlier, Preqin said.
In the first quarter, there were 770 private-equity-backed buyout deals globally, valued at a total of $97 billion — a 20% drop in number but a 14% rise in aggregate value from the previous year.
North America experienced an 86% rise in aggregate value since the fourth quarter of 2014, to $69 billion, with the number of deals in the region falling 18% from 545 in Q4 to 449 this quarter.
A similar fall in number of deals took place in Europe, a drop of 19% to 233, but there was a more significant 43% fall in aggregate value of deals to $17 billion in Q1.
Thanks to the Kraft–Heinz merger, add-ons, including mergers, were the main investment type by aggregate value, accounting for 53% of the first quarter’s global total.
Add-on deals made up 39% of all private-equity-backed deals in the first three months of the year—the first quarter in the 2006–2015 period in which the number of merger deals has surpassed the number of leveraged buyouts, according to Preqin.
“Private equity fund managers are evidently finding greater value in combining portfolio companies within certain sectors, particularly as the global economy begins to stabilize and competition intensifies within specific markets,” Christopher Elvin, Preqin’s head of private equity products, said in a statement.
The Heinz-Kraft merger had a huge effect on the breakdown of investments by sector, with food and agriculture representing 42% of the aggregate deal value in the first quarter, despite accounting for just 5% of all deals.
Preqin said that the weak fund closure figure may increase by as much as 20% as more data flow in. The current figure of 151 closures compares with an average of 288 fund closures in each quarter of 2014.
The $94 billion secured by funds closed in Q1 was the lowest in two years.
Preqin said that although many investors sought to increase their allocations, the fundraising figures pointed to a continuing trend of investors concentrating their investments among fewer large firms.
Following are other Q1 fundraising facts:
- 50% of funds closed exceeded their fundraising target, and 24% more met their target, compared with 69% of funds closed in 2014 that met or exceeded their targets
- On top of the $94 billion raised by funds holding final closes, 130 funds holding interim closes raised a further $34 billion
- Private equity funds closed so far in 2015 took an average of 14.8 months to reach a final close, the shortest time since 2008 when the average was 14.5 months
- The average fund size for vehicles closed in Q1 was $573 million, up 20% from Q1 2014
- North America-focused funds attracted 67% of all capital raised in the first quarter of the year, while Europe-focused funds trailed at 19%
- Blackstone Real Estate Partners VIII, which raised $14.5bn in institutional capital, was the largest fund to close in Q1
- The number of funds in market dipped slightly from a high of 2,235 at the start of the year to 2,206 as of the end of March, suggesting that some managers may be delaying coming to market when faced with such intense competition.