PE Advisers See Deal Climate Remaining Robust

Heading into the fourth quarter, advisers to private equity firms continue to see a strong climate for deals.

"Given the amount of capital sitting on the sidelines in committed funds, I believe that the market will remain robust in the foreseeable future," said Jamie Wildman, a managing director in the financial sponsors group at William Blair & Co. LLC (No. 11 on The Deal's private equity league tables for investment banks which take into account announced PE deals this year through Sept. 15).

PE dry powder stood at about $740 billion, according to the latest data from PitchBook.

"With the market being exceptionally robust and private equity firms regularly receiving inbound interest from both strategic and financial buyers for their assets," hold periods are often shortening, Wildman said.

The average holding period is 5.5 years for PE-backed companies globally that were exited so far in 2017, according to Preqin. The average was 5.7 years for companies exited in 2016 and 5.6 in 2015.

"There's a lot of discussion around going [to market] now versus later," Wildman said.

Oliver Brahmst, global co-head of private equity at White & Case LLP (tied for No. 11 with Ropes & Gray LLP on the league table for law firms), said the first three quarters have been very busy, but also noted that some PE firms are taking a breather from deploying capital so quickly.

"Some firms have deployed capital early in their fund's life and they're thinking, 'We can afford to be a bit patient,'" Brahmst said.

He also noted the continuation of two trends that emerged in the last few years. One is that sponsors have become much more creative in how they deploy capital. The other is the "advent of what once were LPs now being primary investors in their own right," Brahmst said.

The competition for deals continues to be intense.

"There are too few deals to go around," said Wildman. "PE firms want early looks at companies."

Wildman said that historically, people wanted to see every deal they possibly could and would thoroughly evaluate all that were a good fit. He has heard from a number of people, however, that when firms now get a book on a company they are not familiar with, they will not spend much time on the opportunity, even if it is a good fit, as they assume that somebody else already had an early look at the company and will go after it aggressively.

The sector that saw the most buyout deals so far this year was industrials, which accounted for 22.2% of total transactions, according to Preqin. Information technology was next, with 18.2%, followed by consumer discretionary, with 13.8%

The largest PE deal during the third quarter was the agreement by the Bain Capital LP-led consortium in September to buy Toshiba Corp.'s chip unit in a deal valued at 2 trillion yen ($17.7 billion), according to Preqin data through Sept. 25.

Other large transactions include the acquisition of Singapore-based Global Logistic Properties Ltd. by a group including Hopu Investment Management Co., Hillhouse Capital Group, SMG, Bank Of China Group Investment Ltd. and China Vanke Co. Ltd. in a S$16 billion ($11.78 billion) deal in July. In August, an Energy Capital Partners-led investment group agreed to buy Calpine Corp. (CPN), which operates natural gas and geothermal power plants across North America, for $15.25 per share in cash, or $5.6 billion.

Also among the top 10 for the quarter as of Sept. 25 were three KKR & Co. LP (KKR) deals. These include the New York firm's purchase, announced in July, of a majority stake in health and wellness products company The Nature's Bounty Co. from Carlyle Group (CG), which is retaining a minority stake.

The others were the $2.8 billion acquisition of health information services company WebMD Health Corp. (WBMD) by KKR-backed online media and client services firm Internet Brands Inc. in a deal announced in July and the purchase of Envision Healthcare Corp.'s (EVHC) medical transportation unit by KKR portfolio company Air Medical Group Holdings in a $2.4 billion transaction unveiled in August.

This article was produced by the staff of The Deal, a financial intelligence service that provides actionable information on deals and dealmakers, offering over 100,000 users the unique opportunity to find potential deals and target dealmakers.