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PE Firms' Cup Runneth Over


2/15/12

Pitchbook and Grant Thornton recently published an analysis of private equity group exit activity and the results are interesting, though not surprising:

US PE firms are holding record numbers of portfolio companies in their inventory, 6,107. While some of this inventory growth is due to the proliferation of PE firms, much of it has to do with the fact that they havenít been selling many companies.

Over 15% of the businesses in their portfolios have been held for over seven years, and 30% are ďpast dueí for sale. The average age of portfolio companies sold is also now at its highest level, 4.8 years.

This isnít good for young companies looking for PE funding: if PE firms donít sell the companies they buy, they have a harder time raising new funds and paying attention to new investment opportunities.

Other study factoids:
1) In the first half of this year, the largest number of exits was realized by business products and services companies (32%), followed by consumer product and service (23%), IT (17%) and healthcare (14%).

2) During that time, strategics bought 55% of the portfolio companies sold, with other PE firms buying 45%. In about 10% of the cases, the PE firm exited through an IPO.

3) 2011 YTD exits are lower than last year. In Q2 2011, 186 PE portfolio companies had been sold versus 428 for all of last year. At the current run-rate, PE firms will only sell 372 this year.

4) However some relatively good news: the average EBITDA multiple for sold companies so far this year is 8. Thatís about where it was last year.


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