Q4 Flash Report: Another Strong Year for PE
2017 saw robust private equity activity even as valuations stayed high and competition for quality assets remained intense.
"It's been a good year for PE as a whole," said Chris LeRoy, a partner at Ernst & Young LLP's private equity practice. "There's been a tremendous amount of activity."
This year was not that different from 2016, said Jeremy Swan, managing principal of CohnReznick LLP's financial sponsors and financial services industry practice. "The trends we saw in 2016 carried through in private equity and general M&A to 2017," he said. "Debt is readily available though it started to creep up. There's a lot of capital still sitting on the sidelines."
In addition, he noted that there aren't enough quality assets in the market, keeping demand high.
There were 1,527 PE acquisitions globally this year through Dec. 29 worth a total of $354.55 billion, Dealogic data showed. Last year, there were 1,647 transactions with a total value of $345.47 billion.
This year's largest deal was the agreement by the Bain Capital LP-led consortium in September to buy Toshiba Corp.'s chip unit in a transaction valued at 2 trillion yen ($17.7 billion), according to Dealogic.
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 ($11.97 billion) deal in July and KKR & Co. LP's (KKR) deal in December to buy Unilever plc's(UL) global spreads business for €6.825 billion ($8.21 billion).
This year also saw some of the biggest PE firms elevating their next generation of leaders.
Carlyle Group LP (CG) in October tapped Kewsong Lee and Glenn A. Youngkin as co-CEOs effective Jan. 1, succeeding co-founders David M. Rubenstein and William E. Conway Jr., who will become co-executive chairmen of the board. Peter J. Clare will serve as co-chief investment officer alongside Conway. Co-founder Daniel A. D'Aniello, Carlyle's chairman, will become chairman emeritus.
For its part, KKR in July named Joe Bae and Scott Nuttall as co-presidents and co-chief operating officers and added them to the board. KKR co-founders Henry Kravis and George Roberts continue as co-chairmen and co-CEOs.
Another firm that made a leadership announcement is Apollo Global Management LLC (APO), which in November promoted Scott Kleinman and James Zelter to co-presidents effective Jan 1. They will report to senior managing director Josh Harris. Leon Black will continue as chairman and CEO and Marc Rowan will remain a senior managing director.
Looking ahead, among the key things to watch is the impact of the tax law on the PE industry.
"Pretty much across the board here, the phones haven't stopped ringing," Swan said of CohnReznick. Swan and his colleagues have been fielding questions from clients on matters including the deductibility of interest expense and the best way to structure deals.
The tax law will have more impact of industries that tend to have a higher cost of capital and also tend to take on more leverage and be more acquisitive, he said.
In the two months leading up to the passage of the tax reform legislation, one might have expected that deal activity would be down amid the uncertainty, said EY's LeRoy. From EY's standpoint, however, "we have not seen a dropoff in the level of activity with sponsors," he said.
With the tax reform bill now signed into law, "the impact to PE is still a net positive in no small part because the corporate tax rate is lower despite the curbing of interest deductibility," LeRoy said.