May 3, 2019

Private Equity: Getting Out While the Getting’s Good?

This Bloomberg article says that PE funds are holding on to their portfolio company investments for shorter periods than in years past – and that this could be an early warning of trouble ahead for M&A.  Here’s an excerpt:

Private equity firms appear to be signaling “Last one out is a rotten egg.” If those powerhouse investment firms smell something fishy, other investors should take notice.

Holding periods — the amount of time between when a buyout firm makes an acquisition until it flips the company back into the public markets or to another buyer — have been drifting down for the past few years around the world. Last year, though, they took a dive, including in the U.S., where they had risen slightly in 2017. In 2018, it was just 4.5 years from buyout to exit in the U.S., according to research firm Preqin. That’s down from an average of 5.1 years in 2017 and the quickest turnaround time the PE market has seen since 2009.

The article acknowledges that there could be several reasons for the decline, but says that “the most likely answer is that PE professionals see economic trouble ahead and are headed for the exits.”

John Jenkins