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Bain & Company Global Private Equity Report 2013 Summary

Core Content of the Report

This report from Bain & Company provides an in-depth analysis of the private equity (PE) market in 2012 and outlines the dynamics and outlook for 2013 and beyond. It highlights the performance of the PE industry, the challenges faced by general partners (GPs) and limited partners (LPs), and the evolving strategies and relationships between them.

Main Points and Key Information

1. The PE Market in 2012: Treading Water

• Market Conditions:
  The global PE market remained flat in 2012, with no clear signs of momentum. Investment, exits, and fund-raising were all relatively stable, though returns were only marginally improved on paper.

• Global Deal Value:
  Total global buyout deal value in 2012 was $186 billion, a significant drop from the peak of the previous cycle. Despite the increase in the number of active PE firms and dry powder, the market was still underperforming compared to historical trends.

• Deal Size:
  Deal sizes were concentrated in the middle market (between $500 million and $5 billion), with 56 buyouts over $1 billion announced in 2012 compared to 44 in 2011. This trend continued from the global financial crisis, where large buyouts declined.

• Regional Performance:

  • Europe:
    The European PE market was weak, with a 19% decline in deal value and a 7% drop in deal count compared to 2011. The Southern European countries (Italy, Spain, France) were particularly affected by austerity and economic downturns. In contrast, the Northern European market (Germany, UK) performed better, with strong GDP growth and stable banking systems.
  • North America:
    North America was the strongest region, with a 23% increase in deal activity compared to 2011. US-based GPs were confident in the market, leveraging low-cost debt and stable economic conditions.
  • Asia:
    Asia saw a decline in deal activity, with a 22% drop in total deal value across the Asia-Pacific region. Emerging markets like China, India, and Southeast Asia were particularly affected, with deal values falling by 41%, 11%, and 47%, respectively. This was due to a slowdown in GDP growth and a loss of confidence in the reliability of valuation models.

• Dry Powder and Fund-Raising:
  There was a large amount of dry powder available, but many GPs were still hesitant to deploy it due to macroeconomic uncertainty. Older-vintage funds (2007-2009) were under pressure to invest their remaining capital, while newer funds were also competing for deals. Fund-raising improved slightly, but it was still constrained.

• Deal Making Trends:
  GPs focused on sectors with growth potential and certainty, such as healthcare and energy. They also pursued non-core businesses spun off by public companies and sponsor-to-sponsor deals, which accounted for 9 of the 10 largest deals of the year.

• Debt Market Dynamics:
  The cost of debt dropped significantly in 2012, especially for leveraged loans in the US. This made it easier for GPs to finance deals, with leverage levels increasing from 4.9x EBITDA to 5.7x EBITDA. However, GPs remained cautious to avoid overpaying for assets.

2. Dynamics for 2013 and Beyond

• Investments:
  The market is showing signs of improvement, with more deals being made and GPs using more debt. The PE industry is expected to see a return to growth in 2013, with a focus on value creation and strategic alignment.

• Exits:
  Exit activity remained steady, with a focus on maximizing returns. The secondary market continued to provide liquidity, and the decline in the "refinancing cliff" made exits more attractive.

• Fund-Raising:
  While still constrained, fund-raising is expected to improve as LPs become more confident in the long-term potential of private equity. LPs are also exploring new ways to engage with GPs, such as direct investments and co-investment opportunities.

• Returns:
  Returns are on the rise, but they are still dependent on the realization of gains through exits. GPs and LPs are increasingly working together to develop strategies that enhance value and performance.

• Relationship Between GPs and LPs:
  The relationship between GPs and LPs is evolving. LPs are seeking more transparency and better performance from GPs, while GPs are looking to refine their operating models to meet these expectations.

3. Future Outlook and Strategic Considerations

• Four Questions for GPs and LPs:
  GPs and LPs are encouraged to ask themselves key questions about the future of the PE industry, including how to institutionalize success, broaden and deepen the PE playing field, and develop distinctive strategies to stand out in a competitive market.

• Key Takeaways:

  • Private equity remains a strong asset class for most LPs.
  • GPs and LPs must work together to improve performance and create value.
  • The industry is moving toward a more strategic and value-driven approach.
  • The PE market is poised for a recovery, driven by favorable debt conditions and improved macroeconomic outlooks.

• Hot Sectors in 2012:
  The healthcare and energy sectors were particularly attractive to PE investors in 2012, though identifying successful deals required thorough due diligence and a focus on fundamentals.

4. Conclusion

The 2013 report suggests that while the PE market in 2012 was stagnant, there are signs of improvement. The industry is moving toward a more strategic and value-driven model, with GPs and LPs working more closely to enhance performance. As the market evolves, the focus will shift toward creating sustainable value and navigating the challenges of a post-crisis environment.