Private Equity navigates 2014 as confidence increases

Having proven it can react and even thrive in difficult market conditions, Private Equity (PE) continues to navigate 2014 with increased confidence. Optimism abounds regarding investment prospects, exit alternatives and follow-on capital opportunities.

Private Equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity.  The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time.

The most compelling story in 2013 was the return of the PE-backed IPO market, which had its strongest year on record with $58.5billion raised. By year end, 187 PE-backed IPOs had priced, compared with 110 in 2012.

The resurgence in Europe, the Middle East and Africa (EMEA) was particularly striking. Here in 2013, PE firms raised $17.8billion across 35 IPOs, compared to just six raising $2.3billion in 2012.

While other emerging markets are temporarily slowing, Africa’s growth continues unabated. Continent-wide figures show a 136% increase in fund-raising over 2012, and Africa’s fund-raising total has now surpassed India’s.

Annual PE investment in Africa grew from $700million in 2010 to $3.2billion in 2013, indicating 98% growth. Investment totals reflect total equity amounts for transactions in which financial details have been disclosed.

“We expect the strong run to continue in 2014. Although the market is dominated by regional and local firms, bigger players are showing increasing interest. Exits were muted in 2013, possibly due to slowdowns in India and China, two of Africa’s key trading partners. However, exit routes have broadened, with corporate acquisitions declining as a percentage of overall exits,” said Jeff Bunder, global Private Equity leader, E&Y.

New opportunities are bringing balance to private equity. Sustained good news in the US and an improving outlook for many European countries initiated the rebalancing of investor portfolios back toward domestic markets.

Compared to recent years, global funds are likely to invest more capital in developed markets as they seek larger transactions. At the same time, PE activity in emerging markets is expected to persist because many firms have spent recent years building capital and talent.

Stability is also returning to the fund-raising markets. Developed market totals are up, while funds in emerging markets are now focused on deploying the high amounts of capital they have raised.

 Total 2013 commitments to PE funds in developed markets increased by 17% over 2012, to $401.1billion. Indeed, 2013 was the best year for fund-raising since the 2008 peak of $634billion. “Boom era peak is unlikely to be challenged any time soon, confidence is solid,” Bunder noted.