Private equity deal values in first three months of 2019 made a quarter-on-quarter rise of 3.6% to US$202.2 billion. However, in a trend similar to corporate M&A, volume dropped 29% over the same period to 966, the lowest quarterly figure since Q3 2013.

Private equity activity by value Q1 2017 – Q1 2019

Target location: Global Bidder location: Global Sectors: All Sectors Private equity deal type(s): Exit, Buyout and Secondary Buyout

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Breaking these figures down, buyout activity (primary and secondary) fell by only 2.9% in value to US$103 billion despite volume falling to its lowest quarterly total since Q1 2015.

The top two buyouts of the year so far have both been made by US-based consortia featuring Hellman and Friedman (H&F). In early February, the consortium bought US HR software developer Ultimate Software Group for US$11.8 billion—the fifth largest PE buyout in the TMT sector on Mergermarket record. A few days later, H&F, in conjunction with Blackstone, made a US$6.4 billion offer for German real estate and automotive digital marketplace Scout 24.

Continuing the trend, the exit market slowed considerably in volume but made value gains. This is thanks in no small part to KKR’s US$38.4 billion planned sale of payments processor First Data to Fiserv. KKR, which owned approximately 41% of the First Data as of August last year, originally acquired the company in a US$29 billion buyout in 2007 before taking it public in 2015.

TMT tops PE tables

The two H&F consortia deals helped TMT to register as the highest value sector. Total buyout value reached US$37.9 billion, a 91% increase on the same period in 2018. Only the industrial and chemicals sector came close to matching this total with US$21.2 billion-worth of deals.

Middle Eastern promise

The Middle East registered record levels of PE activity, totalling US$9.1 billion, which included the largest-ever buyout in the region, Abu Dhabi National Oil Company (ADNOC)’s planned sale of a 40% stake in its core crude oil pipeline assets to KKR and Blackrock.

With other state-owned oil and gas giants in the region—including Saudi Aramco, Emirates National Oil Company (ENOC) and Oman Oil—expressing interest in taking on foreign investors to open up their capital structures and invest in clean energy and new sectors, the Middle East will no doubt continue to grow as a tempting region for PE firms, as well as infra funds.

The shift toward new sectors already shows signs of paying off. The second-largest PE deal in the region was the exit of venture capital-backed ridesharing service Careem to Uber for US$3 billion.

Fewer deals on the horizon

PE firms have accumulated more than US$2 trillion in dry powder, according to Preqin. And while geopolitical issues such as Brexit and trade tensions between the US and China are likely to put a dampener on deals, the financing environment remains relatively benign, meaning that competition for attractive assets will only intensify, driving valuations ever higher. And the tightening of regulations against Chinese entities may actually have helped some sponsors because it takes some of the “silly money” off the table, making auctions more realistic in terms of pricing.

Funds in Asia, which had historically looked at midcap and smaller deals, are increasingly looking at bigger deals because the opportunity cost, in terms of time and effort to make a deal, is the same, but returns are proportionately greater.

Whether the value sum of bigger deals can fully compensate for a fall in the number of deals being struck remains to be seen.