Private equity enjoyed a banner year in 2017. Record levels of dry powder flooded the market in 2017, reaching an all-time high of US$954 billion in September, according to research group Preqin. This prompted intense competition for assets which in turn pushed up valuations.
For buyout firms, a focus on the top performers and high quality assets pushed overall value to a post-crisis record, while volume reached a record high: US$511.66 billion from a total of 3,283 transactions.
This fevered climate, which saw PE houses vying with their corporate rivals for the best assets, resulted in some headline-grabbing deals over the course of 2017. A consortium including Energy Capital Partners paid US$17 billion for energy group Calpine in the largest buyout of the year.
Meanwhile, Singapore-based warehouse operator Global Logistics Partners (GLP) was acquired by a Chinese consortium including Vanke, Hillhouse Capital and Hopu Investment Management in a US$15.9 billion deal.
Sellers also benefitted from favorable market conditions, with global exit value reaching a three-year high. “The overall dynamic where PE funds have significant amounts of capital to deploy means sellers will continue to push for higher multiples and equity backstops to purchase price payment,” says White & Case Partner Carolyn Vardi.
Yet against this backdrop, many will be questioning the sustainability of the current deal climate. A market overheated by intense competition may cause sellers to price some investments out of the reach of many potential buyers. Despite these headwinds, private equity’s bull-run looks set to continue unabated moving into 2018.