August 7, 2018

What’s Driving Private Equity Megadeals?

According to this MergerMarket report, megadeals made a strong comeback in 2017. PE played a big role in that resurgence, with PE funds or portfolio companies involved in 26 deals valued at $4 billion or greater. The report says that continued growth in megadeals is expected this year – and results so far suggest that this prediction is on-the-money.

Private equity remains a prominent player in these megadeals – as evidenced by Carlyle Group’s $12.5 billion acquisition of Akzo-Nobel’s specialty chemicals business. According to this Intralinks blog, there are two reasons behind the growth in PE megadeals:

Analysts say that the biggest drivers of today’s mega deals are cheap debt and a robust fundraising environment. Another factor relates to the natural evolution of PE, which is becoming more institutionalized and widespread—the inventory of PE-backed companies exceeded 12,000 as of 2017. The institutionalization has resulted in many large firms being able to successfully raise billion-dollar-plus vehicles for PE. It’s also important to note that limited partners are growing larger in size and need to commit larger sums to maintain allocations—and consequently those sums are going to the larger fund vehicles.

John Jenkins