Banner Year for Private Equity Fundraising Bodes Well for M&A in 2017
The private equity coffers are primed for M&A deals in 2017, thanks to successful fundraising in 2016. (See related chart). The dollars raised were on par with 2014, the best year since the financial crisis, according to preliminary data from Preqin. Providing further call for optimism about future dealmaking, a record number of new private equity funds are currently being marketed to investors, who have warmed to the asset class.
The total amount raised in 2016 by PE funds globally was $345 billion, based on data collected by Jan. 3. As more information becomes available, the figures are expected to rise by up to 10 percent, which would put 2016 beyond the post-crisis record of $348 billion raised in 2014.
In a sign of health, 2016 was the fourth consecutive year in which annual fundraising totals exceeded $300 billion. However, the figures still lag the nearly $400 billion raised by funds that closed before the crisis in 2007 and 2008, points out Christopher Elvin, head of private equity products for the London-based supplier of data, analysis and intelligence services to the alternative assets industry.
At 807, the number of funds closed in 2016 was down from the 944 that closed in 2015. Consequently, the average fund size in 2016 reached a record $476 million, surpassing the previous record of $446 million in 2007.
Private equity funds have been growing more successful in their fundraising efforts over recent years, says Elvin. Half the funds raised in 2016 exceeded their target size, compared with about a third in 2012. Only 25 percent of the funds raised in 2016 failed to reach their target size at final close, down from 41 percent in 2012.
In response to increased enthusiasm for the private equity asset class, the number of new vehicles being marketed to investors has been climbing over the past few years. There are currently 1,835 new funds on the road, up from 1,630 a year earlier. Funds being marketed to investors currently are seeking an aggregate $526 billion, up from $488 billion at the start of 2016.
Elvin observes, “The congested nature of the marketplace can make the fundraising process difficult, especially for smaller or less experienced managers, who will need to find effective ways of differentiating themselves and their funds.”
The PE firms that have raised funds recently include: Atlantic Street raised its third fund; HGGC closed its third fund; Gridiron Capital raised its third fund; Gryphon Investors completed its fourth fund; Kainos Capital closed its second fund; and ParkerGale raised its debut fund.
-- Additional reporting by Demitri Diakantonis