The pessimism around the state of the economy seems to have percolated into the private equity (PE) space. A quarterly deals data report from VCCircle’s VCCEdge platform reveals a steep decline in deals activity which clearly indicates caution on the part of investors.
PE deals saw the lowest number in the last five years. “This clearly shows that investors are wary of making investments in any company and are not willing to take any kind of risks,” says the VCCEdge report. Yet, the deal value in the quarter ended March 2019 is the third highest in the last five years. This in VCCEdge’s reading is indicative of the fact that “investors are willing to invest money, but only in established businesses”.
The report says that PE funds continued to dominate deal value in Q1 2019, among the angel/seed investments, venture capital funding, pre-IPO investments, and private placement deals. Of the 209 deals in the quarter, 80 deals were in the angel/seed space, while PE, venture capital (VC), and public equity recorded 76, 40, and 13, respectively. In value terms, the PE space saw deals worth over $6.5 billion, while VC, public equity, and angel/seed deals were worth $1.25 billion, $0.58 billion, and $53 million, respectively. PE funds contributed to 77.57% of the total deal value in March 2019 quarter. “However, deal activity declined significantly across all the categories.”
According to VCCEdge, the average ticket size of PE deals grew larger in the quarter, reinforcing investors’ confidence in strongly backing firms in which they find value. Compared to $18.9 million in March 2018 quarter, the average ticket size of PE deals has grown over two times to $40.1 million in March 2019 quarter. While the absolute value of deals grew by $1.4 billion between the quarters, the number of deals was lower by 160 in the same period.
The declining optimism is also reflected in PE fund raising space, as the quarter saw just two funds raised—the lowest number in the last five years. In terms of fund value, March 2019 quarter witnessed a dip of nearly 66% quarter-on-quarter, and nearly 36% year-on-year, VCCEdge adds. While March 2018 quarter saw 17 PE deals adding up to $1.66 billion, March 2019 quarter’s two deals add up to $1.06 billion.
Similar declining trends are seen in PE exits, too, with a lacklustre performance where the number of exits was the second lowest since March 2015 quarter—both in terms of exit value and deal count. The December 2018 witnessed the lowest number of deals—30—since March 2015. The quarter ended June 2018 was the busiest of the last 17 quarters, when 69 PE exits added up to $12.06 billion with an average exit ticket size of $174.8 million. In contrast, March 2019 quarter average ticket size of exits stands at just $22.9 million with 35 deals adding up to $0.8 billion in total value.
The VCCEdge says that PE exit activity declined across all sectors. Information technology (IT), with 13 deals valued at $335 million, was the busiest sector. In March 2018 quarter, the sector saw 21 deals valued at $217 million. In the financial space, March 2019 quarter saw exits’ deal value marginally rise to $298 million from $257 million a year ago. However, the deal count fell to five, from 12 a year ago. Together, the IT and the financial space accounted for 79% of the value of exits in March 2019.