pitchbook gt exits report 1h2011
TRANSCRIPT
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Private Equity Exits Report
2011 Mid-Year Editon
PitchBook &
Grant Thornton
Sponsored by:
Private Equity: Data | News | Analysis
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Table Of Contents
Grant Thornton Introducon ................................................. 3
Private Equity Exits Overview ................................................ 4-9
Deals and Exits Imbalance .................................................. 4
Porolio Inventory and Holding Period ............................ 5
Exit Trends by Year and Quarter ....................................... 6
Median Exit Value and Exit EBITDA Mulple ................... 7
Exits by Size Bucket .............................................................. 8
Exits by Region and Industry .............................................. 9
Industry Focus ........................................................................ 10-11
Business Products and Services ......................................... 10
Consumer Products and Services ...................................... 10
Informaon Technology ...................................................... 10
Healthcare ............................................................................. 11
Financial Services ................................................................. 11
Energy .................................................................................... 11
Cross-Border Exits .................................................................. 12
Exit Type ................................................................................. 13-16
Overview ............................................................................... 13
Corporate Acquision ......................................................... 14
Secondary Buyout ................................................................ 15
Inial Public Offering ........................................................... 16
COPYRIGHT 2010 by PitchBook Data, Inc. All rights reserved. No part of this publicaon may be reproduced in any form orby any means graphic, electronic, or mechanical, including photocopying, recording, taping, and informaon storage andretrieval systems without the express wrien permission of PitchBook Data, Inc. Contents are based on informaon fromsources believed to be reliable, but accuracy and completeness cannot be guaranteed. Nothing herein should be construed asany past, current or future recommendaon to buy or sell any security or an offer to sell, or a solicitaon of an offer to buy anysecurity. This material does not purport to contain all of the informaon that a prospecve investor may wish to consider andis not to be relied upon as such or used in substuon for the exercise of independent judgment.
The PitchBook AdvantageBeer Data. Beer Decisions.
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The PitchBook AdvantageBeer Data. Beer Decisions.
Theres a lot of research and data out there regarding M&A acvity. Most of this informaon relates to overall trends or
perhaps a segregaon of data by transacon size or industry sector. There is even a fair amount published on private
equity acquision acvity. However, one area that doesnt seem to get quite as much aenon is private equity exits.
For that reason, Grant Thornton LLP and PitchBook have teamed up to explore this topic. On a bi-annual basis, we will
present the current state of private equity exit acvity, historical trends, and our thoughts and insights. We hope this
publicaon helps you beer understand this increasingly important element of the transacon market.
In this installment, we look at private equity exit acvity as of mid-2011 specifically as of June 30, 2011. Overall, 2011
has connued to be a year of recovery for the M&A market. For private equity, the data and trends yield a number of
interesng observaons:
Private equity acquision acvity built to a crescendo and peaked at nearly 2,000 deals (excluding add-ons) in
2007. However, exits dropped significantly during the recession leaving a record level of porolio companies (nearly
double the number from five years ago). A third of these porolio companies have been owned for more than 5 years.
Exit acvity is starng to recover, but it is sll off from the peak levels of 2006 and 2007. Acvity in the first half
of 2011 exceeded the first half of 2010. However, acvity at the end of 2010 was strong, spurred in the fourth quarter
with the scheduled expiraon of certain tax breaks, which were eventually extended.
One piece of good news is that exit mulples for private equity-backed companies are well above levels seen in
the early part of the decade. The median EBITDA mulple is down from the peak in 2007, but that would not surprise
anyone in the industry.
Private equity exits were fairly well disbursed geographically, with the Midwest seeing the largest proporon of
transacons during the first half of 2011. From an industry point-of-view, the Business Products and Services segment
represented nearly one-third of the exit acvity, while Financial Services represented the lowest, aer undergoing a
20% decline compared to 2010.
These highlights are a few high level observaons from the data presented in this publicaon. As a private equity owner,
you may find specific areas of interest based on the parcular size, industry, and stage of development (i.e., how close
you are to an exit) of your porolio companies. We hope this informaon sheds some light on market dynamics as you
assess your parcular exit alternaves.
Stephen McGee
Pracce Leader
Grant Thornton Corporate Finance
Private Equity Exits - 2011 Mid-Yearwww.granhornton.comwww.pitchbook.com | [email protected] | 1-877-26
Private Equity Exit Acvity
The people in the independent firms of Grant Thornton Internaonal Ltd provide personalized aenon and the highest quality servic
to public and private clients in more than 100 countries. Grant Thornton LLP is the U.S. member firm of Grant Thornton Internaonal Ltd
one of the six global audit, tax and advisory organizaons. Grant Thornton Internaonal Ltd and its member firms are not a worldwid
partnership, as each member firm is a separate and disnct legal enty.
Grant Thornton LLP offers private equity firms and their porolio companies a broad array of services tailored to their individual need
and goals. Our professionals are responsive and dedicated, with strong experience in audit, tax, transacon and other advisory service
More importantly, we bring valuable ideas and insights to help our private equity clients achieve their objecves to build and realiz
exceponal value.
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Private Equity Exit Acvity
U.S. Private Equity Investments and Exits
The U.S. private equity lifecycle over the past decade has appeared to be limited to raise fund, invest fund, raise another but bigg
fund, make more new investments and repeat. What has been missing is a significant focus on completely realizing matu
investments. This has not been the case for all private equity firms, but looking at the chart below and considering that the remainivalue of PE funds between five and ten years old is 57% of their total value (notably that 57% usually includes the funds en
profits), it appears to be a widespread phenomenon. To be fair, the unforeseen financial crisis and ensuing economic recession on
exacerbated this imbalance between new investments and exits, as it hit during many PE porolio companies exit window, forc
PE firms to push that window further back and wait for balance sheets, performance and valuaons to recover.
This has le U.S. private equity porolios bursng at the seams with a record 6,107 companies, over 4,000 of which are older th
three years and 2,000 of which are older than five years. The resulng general imbalance is causing firms to reevaluate their foc
and limited partners to hold back from any further commitments unl they see more distribuons. PE firms have been able to fi
some liquidity in their porolios through dividends, dividend recapitalizaons and paral sales, but most, if not all, of the profit is
realized unl the final sale of the company. The criteria for PE firms to successfully raise another fund now not only includes havia track record of good investments but also having a track record of being able to exit those investments and returning capital to th
limited partners. This is why exits are so crical to private equity, more so now than ever before.
The rest of this report will dive deeper into the current investment-to-exit imbalance and then cover, in detail, U.S. private equity ex
acvity for the first half of 2011 and recent years. It will explore the types of companies being sold, how they are being sold and
whom they are being sold in an effort to uncover the trends in todays U.S. private equity exit acvity.
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Company Inventory
The number of companies currently owned by U.S. private equity firms is 6,107, a slight increase from where it stood at the end
2010 (6,001), but almost double where it was just five years ago. The steady growth of PE-owned companies, pictured in the ch
below, shows not only the growth of the industry since 2005 but also how the imbalance of new investments to exits has led to reco
porolio sizes. The sustainability of this growth is quesonable, and likely why the growth appears to be leveling off in 2011. The fis that at some point all of these companies will have to be sold by their investors; some, like the 1,000 that are over seven years
(dark blue region), sooner than later. These mature porolio companies represent prime opportunies for other PE firms a
strategic acquirers with cash available for investments and acquisions.
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Number of PE-Backed Companies Median Holding Period
* Q
This chart breaks down the current 6,107-company private
equity overhang by the date of original investment. Using
the current median holding period of five years, this chart
shows that there are almost 2,000 companies that are past
due for an exit and approximately another 2,000 more that
are within a year of it. It will be worth watching the
inventory levels for 2006-2008 vintage investment closely
to see if PE firms will be able to exit them in good me or if
they will lead to a serious case of porolio indigeson.
The median me to final exit from inial investme
climbed to almost five years by the end of the first half
2011, a new record. The reason for the connued growth
1H 2011 has been the need for PE firms to hold on
companies that are ripe for an exit in hopes of realizing
higher valuaon on the back of another quarter or two
earnings growth. The median holding period will lik
connue to increase as PE firms work through th
inventory of aging porolio companies.
Private Equity Company Inventory
Private Equity Exits - 2011 Mid-Yearwww.granhornton.comwww.pitchbook.com | [email protected] | 1-877-26
All Previous
Years
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Private Equity Exit AcvityHaving established the importance of private equity exits, what does the current U.S. private equity exit acvity actually look lik
The two charts below detail the number of exits and the aggregate exit deal amount for each quarter since the beginning of 200
and for each year since 2006. They show a mixed picture, but the general trend over the past couple of years is towards an increa
in acvity, although on a level well below the 2006/2007 peak and far from the level needed to significantly reduce the currecompany inventory. The financial crisis and ensuing economic recession clearly put a big brake on almost all private equity e
acvity in 2009, much like it did for private equity investment. However, since then acvity has picked up and was especially spurr
on in the fourth quarter last year with the scheduled expiraon of certain tax breaks (which were eventually extended). This had t
effect of clearing out the pipeline of exit deals going into 2011, leading to the dip in acvity during the first quarter of this year. T
good news was that the second quarter showed improvement and was actually the second best quarter for exits since 2008.
The profile of a typical exit during the first half of 2011 was for a company in the Business Products & Services or Consumer Produ
& Services industries, likely located east of the Mississippi and valued at somewhere around 8x EBITDA with a price tag of betwe
$50 million and $250 million. The buyer was usually another company acquiring it for strategic purposes, almost certainly
U.S.-based company.
There are a number of posive trends developing in exit
acvity and the second half of the year should see a
connued upck in acvity. Private equity firms are paentinvestors that have proved themselves in the past to have an
uncanny ability to exit companies at the opmal point.
However, that paence is wearing thin for private equity firms
and even thinner for their limited partners, who have been
waing six to seven years now to see profits on their
investment. These factors, combined with the sheer number
of mature PE investments, are likely to drive exit acvity
during 2H 2011 and well into 2012.
The PitchBook AdvantageBeer Data. Beer Decisions.
Exits by Quarter
Exits by Year
* Q
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Despite a decrease in the median exit size during 1H 2011 from 2010 highs, the median exit for private equity-backed compan
connues to be above the levels seen before 2010. For corporate acquisions, the size drop was by 23% to $170 million, and f
secondary buyouts, it was 16% to $295 million. The B2B industry, accounng for one-third of PE exits, was the key contributor to t
decline of exit deal sizes in the first half of 2011, with the industry median exit size dropping to $120 million from $168 million
2010. The drop in median exit size is likely a reflecon of smaller companies being sold by PE firms, as opposed to a decline in t
values of the PE companies being sold, since the exit size/EBITDA mulple has held steady.
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Median Exit EBITDA Mulple
Median Exit Value ($M) by Exit Type
The median exit mulple (exit deal size/EBITDA) for private equity-backed exits so far in 2011 has stayed on-par with 2010 at 8
Under the surface though mulples have been changing in the first half of 2011, strategic acquisions have increased to 9.6x fro
8.5x, while exit mulples for IPOs and secondary buyouts decreased. Exits in the informaon technology and energy sectors clos
with the highest mulples, both at 13.7x, followed by consumer products and services at 8x.
* Q Private Equity Exits - 2011 Mid-Year
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There were two main changes in the breakdown of exit acvity by deal size during the first half of 2011: a decrease in deals betwe
$500 million $1 billion and an increase in deals above the $1 billion mark. Despite the increase in large exits, it is important to no
that it is the lower- and middle-markets that account for 83% of private equity exit acvity. This is a posive sign for the industry,
the vast majority of private equity investments fall within this range and hopefully an encouraging sign to investors that e
opportunies are available across the company size spectrum.
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Number of Exits by Size Bucket
While lower- and middle-markets see the most exits, larger exits, $1 billion and above, account for the majority of capital proceed
Private equity-backed exits above $1 billion totaled $42.47 billion in aggregate deal size and represented 70% of exit sales in the fi
half of 2011. The largest part of that total comes from exits above $2.5 billion, which during the first half of 2011 totaled eight, fi
more than in all of 2010. The top industry for these mega exits in 2011 has been Healthcare, having tallied four to its credit so far
Exit Deal Size by Size Bucket
* Q Private Equity Exits - 2011 Mid-Year
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Private equity exits were fairly geographically dispersed du
the first half of 2011. The Midwest led the pack with 19% o
exits, followed by the Northeast and Southeast with 18% oexit acvity apiece. The two regions that have experie
recent increases in exit acvity are the Northeast
Mid-Atlanc. The Northeast saw a 50% increase in acvity f
the first half of 2010 and the Mid-Atlanc a 53% increase f
the second half of 2010. Falling out of favor for exits during
first half of 2011 have been companies in the West Coast
Southwest regions, both posng declines in exit deal acvi
over 30% compared to the first half of 2010.
The PitchBook AdvantageBeer Data. Beer Decisions.
Exit acvity was dominated by the Business Products & Serv
and Consumer Products & Services industries during the
half of 2011. Informaon Technology connued to hol
posion as the third most acve industry for the third
running, followed closely by Healthcare. Exit acvity was win the remaining sectors, a trend that reaches back to
beginning of 2009. In the B2B industry, exits were evenly
between the Commercial Products and Commercial Serv
sectors with 26 deals apiece. In the B2C space, exit acvity
more widespread with thirteen in the Consumer Non-Dura
sector, nine in Consumer Durables and seven in Transporta
In the remaining industries, there were pockets of concentr
exit acvity, such as the sixteen exits from Soware compa
nine from Healthcare Services companies and six from En
Services companies. The industries that saw the biggest de
in exit acvity during 1H 2011 compared to 1H 2010 w
Energy with a 36% drop, Materials & Resources with a decline and Financial Services with a 20% decline.
Exit by Region 1H 2011
Exit by Industry 1H 2011
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The Business Products and Services (B2B) industry, w
includes the Commercial Products, Commercial Services
Transportaon sectors, has led private equity exit acvity o
the past three years with a total of 282 transacons. This wo
be expected as the B2B industry has also consistently
private equity investment. There were 59 exits comple
during the first half of 2011 in the industry, an increase of 3
from the same period last year and totaling $9.45 billio
aggregate. Both the Commercial Products and Commer
Services sectors ended the first half with 26 exits each.
The PitchBook AdvantageBeer Data. Beer Decisions.
Business Products and Services
Exit by Sector
The Consumer Products and Services (B2C) industry, wh
includes the Apparel; Consumer Durables; Consu
Non-Durables; Media; Restaurants, Hotels and Leisure; Re
Transportaon and Consumer Non-Financial Services sect
saw a total of 233 exits over the past three years. There w
42 exits in the first half of 2011, a decrease of 20% from
same period last year. The most acve sector in the
industry was Consumer Non-Durables with thirteen e
which was led by the Food Products sub-sector with
transacons. The 42 exits in 1H 2011 totaled $6.6 billion, le
$2 billion of exits in the Consumer Durables sector.
Consumer Products and Services
The Informaon Technology (IT) industry, which includes
Communicaon and Networking, IT Hardware, Semiconduc
IT Services and Soware sectors, saw 166 exits completed in
past three years. The first half of 2011 ended with 32 compl
exits, an increase of 14% from the same period last year.Soware sector led the first half of 2011 with sixteen compl
exits, followed by the Communicaons and Networking se
with six. The combined total of the industrys exits was $
billion for the first half of 2011, the lowest amount of
industry.
Informaon Technology
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The Healthcare industry, which includes the Devices
Supplies, Healthcare Technology Systems, Pharmaceucals
Biotechnology and Medical Services sectors, saw a total of
exits during the last three years. There were 26 exits comple
during the first half of 2011, on par with the same period
year. The most acve sector in the Healthcare industry
Medical Services with nine exits. The Healthcare industry
the most acve industry in terms of capital proceeds during
first half of 2011 with a total of $18.2 billion.
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Healthcare
Exit by Sector
The Financial Services industry, which includes the Cap
Markets and Instuons, Commercial Banks and Insura
sectors, completed 55 exits in the past three years. With o
eight completed transacons in the first half of 2011,
industry was the least acve industry in terms of private eq
exits. The industry has seen a very low level of exit ac
stretching back a number of years despite a significant amo
of past private equity investment. This will be one industr
keep an eye on to see if and how and when private equity fi
are able to successfully exit their porolios of mat
investments.
Financial Services
The Energy industry, which includes the Equipm
Exploraon, Producon and Refining; Energy Services
Ulies sectors, has seen only 57 exits in the past three ye
a number equivalent to only about 15% of the 374 Ene
companies PE firms invested in during this same me framtotal of nine exits were completed in the first half of 201
36% decrease from the same period last year. Energy Serv
was the most acve sector in the Energy industry during
first half of 2011 with six completed exits totaling $4.3 billio
Energy
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Internaonal Company Exits by U.S. Investors
Consumer Products and Services (B2C)
This chart details the exit acvity of non-U.S. company investments sold by U.S. private equity firms over the last seven and a h
years. Western Europe and Northern Europe have not surprisingly been the most acve regions, accounng for over half of the U
PE investor internaonal exits over the last few years. Europe aracts a significantly higher number of U.S. PE investments compar
to other regions, and the large exit volume is likely a reflecon of this investment trend. So far in 2011, there has been a clear jum
in exit acvity in China and Canada, a trend worth monitoring.
Internaonal Buyers in U.S. Company Exits
U.S. PE firms tradionally look to sell their porolio companies to other U.S. companies and investors, but this has been chang
over the last few years. The amount of PE-backed companies sold to non-U.S. investors or companies now accounts for about 10%
all exits. With the Canadian dollar on par with the U.S., Canadian investors and companies are finding a lot more opportunies sou
of the border and have accounted for almost 40% of non-U.S. buyer acvity in 2011. European buyers have slightly decreased th
acvity from years past, while Chinese buyers have stepped up to account for about 15% of non-U.S. buyer exits.
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Number of Exits by Exit Type
When it comes to fully exing investments (not just generang some liquidity) private equity firms rely heavily on three ma
strategies: sales to strategic acquirers (corporate acquisions), sales to other private equity firms (secondary buyouts) or taking t
company public (IPOs). Over the years, the mix of these exit strategies has largely stayed consistent with corporate acquisio
accounng for the majority, followed by secondary buyouts and then IPOs. So far in 2011, there has been lile change to the stat
quo, as shown by the breakdown of exit types in the stacked bar chart below. However, in the 4Q 2010 exit rush, there were a lar
number of secondary buyouts, 66 to be exact, as private equity firms turned to other private equity firms. There are mulp
explanaons for this, including PE firms need at the me for the quick closing ability of PE-to-PE deals and the easy sourcing
buyers from exisng industry relaonships.
Percentage of Exits by Exit Type
The first half of 2011 showed that the different exit
strategies were firing on all cylinders for private
equity investors with strong compeon from
strategics and buyout firms in aucon sales and
more successful IPOs than in years past. There are
currently a plethora of posive trends occurringacross corporate acquisions, secondary buyouts
and IPOs that bode well for the second half of 2011
and on into 2012. They are covered in more detail
on the following pages.
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Corporate Acquision
Companies (strategic acquirers) have long been the biggest buyers of private equity-backed companies and that shows no sign
changing this year with 101 such deals totaling $39.5 billion completed in the first half of 2011. Over the past five years corpora
acquisions have accounted for about 60% of PE exit deals, although this has dipped slightly with the recent increase in IPOs a
secondary buyouts. The median corporate acquision deal amount so far in 2011 has been $170 million, the second highest amou
ever as PE firms take advantage of the deep pockets of strategics. Among the companies buying PE companies in 2011 are a numb
of Fortune 500 companies such as General Electric (NYSE: GE), Coca-Cola (NYSE: KO), Sara Lee (NYSE: SLE) and Southwest Airlin
(NYSE: LUV), as well a number of medium sized businesses such as Loomis Fargo, Saputo Cheese and Helen of Troy (NASDAQ: HE
The industry breakdown of corporate acquision deals in 2011 has largely been spread out equally among four main industries, b
looking deeper, there are clusters of acvity around a few sectors, mainly Commercial Products, Consumer Non-Durabl
Pharmaceucals and Biotechnology, and Soware. With the amount of cash on corporate balance sheets and the need f
companies to find growth in the current low growth environment, the dynamics for more corporate acquisions certainly exist a
could lead to a busy rest of the year.
Corporate Acquisions by Industry - 1H 2011
*
Median Holding Period
Number of Coroprate Acquision Exits
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Secondary Buyout
Median Holding Period
Private equity to private equity deals, known as secondary buyouts, have received a lot of aenon this year, but so far there has n
been the speculated increase in these deals. They have been chugging along at around 28% to 32% of exit deal flow for the last tw
and half years with the excepon of 4Q 2010, when there was a spike in secondary acvity. During 4Q 2010, there were 66 seconda
buyouts with a combined deal value of $23.5 billion. It took the first two quarters of 2011 to reach 66 secondary buyouts totali
only $12.4 billion. The secondary buyouts so far in 2011 have been disproporonally centered on the Business Products and Servic
industry with 29 deals, followed by the Consumer Products and Services industry with 15 deals.
In 2011, secondary buyout exits have on average come five years aer a PE firms inial investment in the company. This is in linwith what was seen in 2010 but a full year longer than what it was between 2006 and 2008. All of the condions are in place for
increase in secondary buyout acvity with a $470 billion private equity capital overhang and a record inventory of 4,633 PE-back
companies at or beyond the normal exit period. Look for more secondary buyouts to take place in the second half of 2011 and rea
gain momentum in 2012.
Secondary Buyouts by Industry - 1H 2011
*
Number of Secondary Buyout Exits
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Inial Public Offering
Median Holding Period
Private equity firms have faced a rough me with the public markets over the past several years with only 101 IPOs completed sin
the beginning of 2008, as compared with the 118 in 2006 and 2007. The good news though is that PE firms in the past 18 mont
have been able to take advantage of the recovering stock market by taking 63 companies public. Leading the charge was Hospit
Corporaon of America (NYSE: HCA) with the largest PE-backed IPO ever at $4.3 billion, as well as other large offerings such as Kind
Morgan (NSYE: KMI) and The Nielsen Company (NYSE: NLSN). Most of the companies though were more modest in size with t
median market cap at me of IPO being $835 million.
It is important to note that in most of the recent private equity company IPOs the PE firms are selling very few of their shares, if aMost IPOs proceeds are instead being used by the companies for debt repayment and other corporate purposes. This drawn out e
is likely why there is a four-year hold me before IPOs are completed, as opposed to five years for both secondary buyouts an
corporate acquisions. IPOs are highly affected by the equity markets, but with 82 PE-backed companies sing in IPO registrao
there is potenal for an acve second half of the year.
IPOs by Industry - 1H 2011
* Q
Number of IPO Exits
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