PitchBook. Bet ter Data. Bet ter Decisions. The Private Equity. Company Inventory. Report 2012 Edition

Transcription

1 PitchBook The Private Equity Company Inventory Report 2012 Edition

2 TABLE OF CONTENTS Introduction... ii Overview...1 Company Inventory by Age Bucket Company Inventory by Industry...4 Business Products and Services...4 Consumer Products and Services...4 Energy...5 Financial Services...5 Healthcare...6 Information Technology...6 Materials and Resources...7 Company Inventory by State...8 COPYRIGHT 2012 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems without the express written permission of PitchBook Data, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment. i

3 INTRODUCTION The inventory of U.S.-based, PE-backed companies (excluding add-ons and other portfolio company acquisitions) serves as a critical metric for buyers and sellers looking to evaluate the current investment landscape. It s no secret that PE firms built up a healthy catalog of companies during the boom years, and despite significantly lower deal volume in recent years, the company inventory has continued to creep up and now sits at 6,238 companies, according to the PitchBook Platform. For private equity firms and corporate strategics alike this group of companies provides a rich source of quality deals, as all of these companies sooner or later will need to be sold by their owners. For PE firms looking for liquidity opportunities it is important to know what other companies might be in the market or likely to soon be in the market. In order to obtain a comprehensive view of the current inventory, this report examines PE-backed companies by investment year, deal size, industry and geography. Some of the key findings include: The PE company inventory has been steadily rising for more than a decade and is currently at a record 6,238 companies. Companies acquired from 2006 to 2008 have created a bulge in the company inventory, accounting for 43% of the current total. Unsurprisingly, the current company inventory is highly concentrated in the Business Products and Services (B2B) and Consumer Products and Services (B2C) industries, which represent 65% of the current total. The highest number of PE-backed companies are found in the traditional hubs of investing activity, such as California (727), Texas (605) and New York (401). This report, paired with the PitchBook Platform s information on more than 51,000 companies, provides an unparalleled ability to target in a very detailed manner both potential deal targets and liquidity opportunity intelligence. In-depth information on the operations, management, investors and financials for all of the individual companies underlying the current PE company inventory is available through the PitchBook Platform. Click here to request a demonstration or contact us at demo@pitchbook.com if you are interested in learning how to obtain access to this data. We hope the information and data included in this report will provide insight into recent investing activity and help you make better decisions moving forward. Adley Bowden Director of Research, PitchBook Data ii

4 OVERVIEW The inventory of U.S.-based PE-backed companies has been steadily on the rise for more than a decade, ballooning from 415 companies in 2000 to the current level of 6,238. As can be seen in the graph below, the company inventory expanded exponentially during the boom years, jumping 133% from 2,261 in 2004 to 5,266 in The backlog of PE-backed companies acquired in 2006, 2007 and 2008 remains higher than every individual year since, and the three years combine to account for 43% of the current inventory. While not a large component of the overall inventory, the number of companies acquired eight or more years ago remains surprisingly high at 978 and has only declined 10% since Lower levels of investment and an increased focus on exits have mitigated increases in the company inventory in recent years. In fact, the number of companies acquired between 2009 and 2012 to date (2,015) is less than two-thirds the total from the preceding four-year period (3,245). PE firms achieved just 212 exits in 2009 but executed more than 400 in both 2010 and 2011 and have set a pace to accomplish the feat once again in PitchBook s recently published 2012 Capital Overhang and Fund Cashflow Report showed that PE firms still have more than $430 billion in dry powder ready to deploy, much of which comes from older vintage funds that will need to invest quickly or risk missing their investment window. The large capital overhang combined with an ever-increasing company inventory should lead to increased deal activity, especially secondary transactions. Corporations, whose large capital reserves have been widely publicized, appear primed to go on a buying spree as well. The ensuing pages will further break down the inventory to provide a more comprehensive picture of its current state. 1

5 COMPANY INVENTORY BY AGE BUCKET INVESTMENTS FROM PE firms have been diligently working to restore order to the industry following the financial crisis, making fewer investments while sensibly chipping away at the industry s capital overhang. The fact that the number of PE-backed companies acquired between 2009 and 2012 (2,015) is less than two-thirds the number from the 2005 to 2008 age bucket (3,245) is emblematic of this prudence. Investments made in 2011 make up the largest portion in the age bucket with 709 current PEbacked companies, which is actually less than the total from each of 2006, 2007, and 2008, a further demonstration of the more constrained investing climate. B2B and B2C are the dominant industries, as is to be expected, with Healthcare (12%) and IT (11%) also contributing considerably. 11% 5% 12% 6% 7% 25% 34% B2B B2C Energy Financial Services Healthcare IT Materials and Resources 3% $0-$25M 4% 7% 20% 66% 2

6 INVESTMENTS FROM Companies acquired by PE backers from 2005 to 2008 are most responsible for the record-breaking inventory, accounting for 52% of the total. The investing is heavily concentrated between 2006 and 2008, with more than 800 portfolio companies remaining from 2006 and 2008 and more than 1,000 from Of the 3,245 portfolio companies in the age bucket, a substantial 1,282 (40%) are in the B2B industry. While middle-market companies make up the lion s share of the inventory for the age bucket, there are more than 100 companies with an initial investment size in excess of $1 billion. 8% 5% 5% 9% 6% 27% 40% B2B B2C Energy Financial Services Healthcare IT Materials and Resources 62% 3% $0-$25M 3% 8% 24% INVESTMENTS FROM Exiting investments made in the early 2000s has proven difficult for PE firms, which are still holding 978 companies that were acquired between 2000 and The most troubling aspect of this trend is that the number has been relatively stagnant in recent years, declining just 10% since There are still 409 PE-backed companies that were acquired in 2004, nearly equal to the amount acquired five years later in The vast majority of the portfolio companies from this age bucket are concentrated in the middle market, with 82% possessing an enterprise value between $25 million and $500 million at the time of acquisition. Aside from B2B and B2C, most of the current inventory operates in the IT and Materials & Resources industries. 6% 3% 3% 10% 7% 36% 35% B2B B2C Energy Financial Services Healthcare IT Materials and Resources 49% 1% 2% 15% 33% $0-$25M 3

7 COMPANY INVENTORY BY INDUSTRY BUSINESS PRODUCTS AND SERVICES (B2B) With 2,321 current portfolio companies, the B2B industry accounts for more than one-third (37%) of the overall PE company inventory. Nearly 90% of those companies come from the Products and Services sectors, with Transportation accounting for an additional 8%. Most of the current B2B inventory was acquired in the middle of the decade, particularly from 2006 to 2008, which currently accounts for 46% of the total. Two-thirds of the companies (1,536) had an initial investment size of $100 million to $500 million and a substantial 23% possessed a valuation of $25 million to $100 million. 66% 1% 3% 7% 23% $0-$25M CONSUMER PRODUCTS AND SERVICES (B2C) 43% 8% 4% Commercial Products 45% Commercial Services Transporta on Making up 28% of the total PE company inventory, the B2C industry currently has 1,731 PE-backed companies. Most of these companies hail from the middle market, but 11% had initial investment sizes less than $25 million. On the other end of the spectrum, 50 companies were acquired for more than $1 billion. 3% $0-$25M 2% 11% 27% 57% 1% Apparel and Accessories Consumer Durables 8% 8% 6% Consumer Non-Durables 16% Media 11% Restaurants, Hotels & Leisure 17% Retail 18% Services (Non-Financial) 15% Transporta on 4 These businesses are distributed fairly evenly across sectors, but investment has been recently shifting to Non-Durables, which has accounted for 23% of the deal flow since Sixty-one percent (61%) of the B2C industry s PEbacked companies were acquired from 2004 to 2008 and should be primed for exit in the near future.

8 ENERGY PE firms currently hold 331 Energy companies in their portfolios, most of which are involved with Exploration, Production, and Refining and energy-related Services. With the large capital costs associated with the industry, 13% of companies had an initial investment size of more than $500 million, the most for any industry. Unlike many other areas of PE, Energy investment was not as highly concentrated in the middle of the last decade and only 8% of the current inventory was acquired in 2004 or earlier, the least of any industry. Investment has been strong in recent years, however, driving the inventory up 41% since % 4% $0-$25M 8% 63% 16% 33% 1% 8% 19% 39% Equipment Explora on, Produc on and Refining Services U li es FINANCIAL SERVICES One of two industries to see a decline in company inventory in the last year, Financial Services appears to be one of the more balanced areas of PE investment. The 2005 to 2008 age bucket is not as big of a drag as it is in other industries, and while investment was heavy in 2010 as firms looked to buy companies beleaguered from the financial crisis, it quickly returned to more sustainable levels in % 7% $0-$25M 10% 21% 58% 40% 21% 13% 26% Capital Markets and Ins tu ons Commercial Banks Insurance The Insurance sector makes up the single largest portion of the industry s inventory. Unsurprisingly, a relatively large 7% of companies had an initial investment size of more than $1 billion. 5

9 HEALTHCARE While deal flow dropped precipitously in most industries following the investment boom, the Healthcare industry has maintained relatively consistent levels of PE activity in recent years. Most of the industry s current inventory was acquired in 2010 and 2011, as opposed to 2007 and 2008, as is the case for most other industries. Despite this continued investment, the growth of the capital overhang has curtailed in recent years as investors have been able to take advantage of exit opportunities. As the population ages, healthcarerelated services and technologies should continue to be an area of strength for the PE industry. 4% 4% 7% $0-$25M 66% INFORMATION TECHNOLOGY 52% 5% 3% 10% $0-$25M 30% 40% 19% 6 57% 0% Communica ons and Networking Hardware 27% Semiconductors 16% 3% 14% Services So ware 0% Devices and Supplies 25% 8% 10% HC Technology Systems Pharmaceu cals and Biotechnology Services The company inventory in the IT industry has ticked down slightly so far in 2012 as investment has returned to the levels seen prior to the middle of the 2000s. PE firms have been working diligently to exit the glut of companies that were accumulated from 2005 to 2008, completing more than 60 exits in both 2010 and 2011 and setting a pace for 80 exits in 2012 through the first quarter. The Software sector continues to be the main driver for the industry. Forty percent (40%) of IT s current inventory had an initial investment size of less than $100 million, the most for any industry.

10 MATERIALS AND RESOURCES Materials and Resources has experienced the slowest rise in its company inventory of any industry since 2008, expanding just 9% compared to 18% in B2B, 31% in Healthcare and 41% in Energy. Much of the trend can be attributed to strong exit activity from companies in the 2005 to 2008 age bucket, which has declined 18% since 2009, the most of any industry. Materials and Resources comprises a wide range of sectors, with most of the industry s inventory coming from Containers and Packaging, as well as Chemicals and Gases. As is to be expected, investment is concentrated in the middle market, particularly the $100 million to $500 million range. Pitch B ook 59% PLATFORM HIGHLIGHTS 3% $0-$25M 4% 10% 24% 11% 11% 8% 1% Agriculture 5% 29% 2% 33% Chemicals and Gases Construc on (Non-Wood) Containers and Packaging Forestry Metals, Minerals & Mining Tex les Competitive Advantage Comprehensive Coverage PitchBook s fund data includes detail-intensive drill-downs on returns, portfolio companies, lead partners on deals, limited partners, service providers and much more. Rigorous Research All of PitchBook s data goes through a rigorous multi-stage cleaning (secondary research) and validation process (primary research) to ensure its accuracy. Transparent Data PitchBook's data is fully transparent, allowing users to see where the data has been sourced, accompanied by complete sets of quarterly and annual historic returns. Advanced Analytics PitchBook's powerful analytics and charting tools allow users to customize information for individual purposes (cash flows, IRRs, cash-on-cash multiples and/or fund dry powder for both individual funds or customized groups of funds). PitchBook Platform Data Tallies 1 Companies Transactions Professionals Investment Firm Professionals Investors (Financial & Strategic) Investors (PE & VC) Funds Funds with Returns Open/Upcoming Funds Service Providers Limited Partners % Funds with Dry Powder Funds with Cash Flows Funds with IRR 50,398 74, ,353 84,808 19,617 9,671 16,217 5,427 2,862 7,653 6,599 70% 3,487 3,191 1 All Pitchbook data sourced from the PitchBook Platform as of 5/22/12. 7

11 COMPANY INVENTORY BY STATE NOT SHOWN Alaska: 5 D.C.: 20 Guam: 1 Hawaii: 11 Puerto Rico: 6 Territories: 2 This map shows the current number of PE-backed companies headquartered in each state across the country. 8

12 PLATFORM HIGHLIGHTS Competitive Advantage Better Data. Better Decisions. With its robust data, rigorous research & award-winning technology, PitchBook gives you the tools to make better decisions, faster. 189, , , , x more 3.0x more More PE & VC Professionals More Transactions 6, , , , x more 1.7x more More Limited Partners More Open/Upcoming Funds 1 Data sourced from 4Q 2011 nearest competitor publication. All other competitor data sourced from nearest competitor site on 4/4/12. 2 All PitchBook data sourced from the PitchBook Platform as of 5/22/12. Contact PitchBook: l main: (877) l demo@pitchbook.com