Private equity firms were sitting on a record $2.59 trillion in cash reserves available for buyouts and other investments as of December 15, according to S&P Global Market Intelligence.
Nearly a quarter of that cash was held by 25 of the industry's largest groups, including Apollo Global, Blackstone, KKR, CVC Capital and Advent International. Notably, 19 out of these 25 firms were headquartered in the US.
It is to be noted that this analysis report is limited to the top 25 global private equity investors by dry powder with investments announced or completed between Jan. 1, 2023, and Nov. 30, 2023.
Industry executives and their advisers believe the new year presents a big test for private equity investors as they seek ways to sell down large large investment while searching for new opportunities.
The dry powder total as of Dec. 1 represented close to an 8% increase over the December 2022 total of $2.39 trillion, according to S&P Global Market Intelligence and Preqin data.
Apollo Global Management Inc. led the list of these PE firms, with $55.14 billion in unspent capital available to its private equity strategies, followed by KKR & Co. Inc. and CVC Capital Partners SICAV-FIS SA.
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According to consultancy Bain & Co., the number of private equity exit transactions in last quarter was near a decade low, which left buyout groups with a record $2.8 trillion in unsold investments and what Bain described as “a towering backlog” of companies to exit.
In India, the country's startup ecosystem is currently sitting on $20 billion (~ ₹ 1.6 trillion) in dry powder waiting to be allocated, according to Rajan Anandan, managing partner, Peak XV Partners (formerly Sequoia India).
In India, the country's startup ecosystem is currently sitting on $20 billion (~ ₹ 1.6 trillion) in dry powder waiting to be allocated, according to Rajan Anandan, managing partner, Peak XV Partners (formerly Sequoia India).
According to Financial Times, the private equity groups selling businesses to each other had increasingly used complex structures. Those included performance-based earn-outs — which pay sellers additional cash if a business performs better than expected — or other tools such as deferred payments from buyers and large rollover investments from sellers in order to get deals done.
Quoting Chris Zochowski, a private equity partner at Shearman & Sterling, the Market Intelligence report states that the buyers want lower asset prices, and the resulting valuation gap creates hesitancy to execute deals.
Chris forecasts an upward trend in deal activity in the next 12 months, at a much greater rate than what was witnessed in 2023.
Deployment of the massive Capital, raised by PE firms, could begin in 2024 if inflation sinks down and interest rates begin to stabilize.
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