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Portfolio > Alternative Investments > Private Equity

Private Equity Firms Selling Companies Faster

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The average time private equity firms hold buyout investments has dropped to 5.5 years for companies sold so far in 2015, according to a report last week by Preqin, the alternatives data provider.

This is the first decline in the average holding period for buyout deals since the financial crisis. In 2014, the average holding period peaked at 5.9 years for companies exited.

The drop is coupled with a record number and total value of private equity-backed exits in 2014, Preqin reported.

Last year, 1,686 exits valued at a total of $442 billion took place, indicating that general partners were still capitalizing on suitable exit opportunities for their investments.

Preqin said this positive trend could be attributed in part to the increasing prominence of partial exits in recent years.

Partial exits accounted for 33% of all exits in 2014, compared with just 21% of all private-equity-backed exits in 2006 and 19% in 2008.

“Private equity investments are traditionally long-term investments with typical holding periods ranging between three and five years,” Christopher Elvin, Preqin’s head of private equity products, said in a statement.

“The average holding period for these deals has in fact been rising steadily ever since the financial crisis, and reached almost six years on average for deals exited in 2014.”

Elvin said the healthy exit environment and the drop in average holding time for companies sold this year may indicate this trend has turned a corner.

“Yet even with this strong exit environment and the average holding period falling slightly, a significant proportion of companies bought during the buyout boom of 2006–2007 still remain active in private equity firm portfolios.”

Other Key Facts:

  • The lowest average holding period was 4.1 years for deals sold in 2008
  • European companies sold this year had the longest average holding period, 5.7 years, compared with 5.3 years for North America companies sold in 2015
  • Since 2006, energy and utilities companies have had the shortest average holding period, 4.3 years, while companies in the industrials sector and consumer and retail had the longest one, 5.3 years
  • Deals of $1 billion or more underwent the biggest change in average holding periods since 2006, from a low of three years in 2008 to a high of seven years in 2014
  • Average holding periods for deals in the $250 million-to-$999 million range increased from 3.2 years in 2006 to 6.4 years for portfolio companies fully exited in 2014, and for deals of less than $250 million, it increased from 3.5 years in 2008 to 5.8 years in 2014.

Quick Exits

Preqin reported some notable exceptions in the trend of longer holding periods.

Warburg Pincus held its investment in JHP Group Holdings a little more than a year before selling it to TPD-backed Par Pharmaceutical Cos. in early 2014, and reportedly reaped three times its original investment.

Similarly, Clearlake Capital Group earlier this year made a quick three-times return on its investment in PrimeSport, after holding a stake in the company for less than 12 months.

— Check out SEC Private Fund Unit Focused on Conflicts, Real Estate Managers on ThinkAdvisor.


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