The ongoing dealmaking bonanza is firing on all cylinders. Sponsors are awash in cash, deal multiples are climbing upward, and exit options abound. And the party looks like it will keep going for the next 12 to 18 months, EY global private equity lead analyst Pete Witte predicted. The catalysts are too strong to stumble, “barring exogenous shocks [or] unpredictable events.”

“Exit activity has climbed substantially,” said Witte at a roundtable media forum last week. “Firms exiting companies at record levels. The wait for firms that wanted to monetize during the pandemic, the wait is over.”

Signs of frothy financial sponsor valuations are evident across sectors. Refinitiv finds that the average private equity takeover reached all time highs at 13.2x enterprise value to earnings before interest, depreciation, and amortization in 2020. That’s up slightly from 2019, but is noticeable given valuations’ resilience in an act-of-god market environment. 

That trend is expected to continue higher as well. Financial sponsors expect valuations to increase this year, according to a recent BDO survey of private equity and venture capital managers. General partners told BDO more financial sponsors are getting off the sidelines, creating more robust competition for target companies.

The result is a virtuous cycle. The rebound in secondaries and IPOs are also driving distributions to LPs, which are in turn spurring fundraising campaigns at record levels. 

“Fundraising is on a record pace as well,” Witte noted. “A lot is driven by large flagship funds; even on that scale, [they are] closing quickly, at larger sizes, are oversubscribed and turning away money.”

Markets look resilient given the substantial catalysts driving activity. Let the good times roll on!