Private Equity Firms Put $300B Dent in Dry Powder

Capital deployed by private equity firms in buyout deals shrunk significantly this year, Preqin has reported.

Despite near-record numbers of global buyout deals, reaching almost 4,000 transactions in total, the data company reported that managers invested just $319 billion in buyouts—a $90 billion fall from last year’s $409 billion.

As of the end of 2015, buyout firms had amassed $461 billion in dry powder to allocate, and fundraising continues to be “strong,” said Christopher Elvin, head of private equity products at Preqin.

“The opening quarter of the year represented some of the lowest levels of global deal flow seen in recent years, but since then, buyout deal activity has rebounded well and is on track for a record number of transactions,” he said.

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Buyout deals larger than $1 billion represented most (62%) of the total deal value in 2016, but the majority of transactions were small-cap deals worth less than $100 million each.

The industry sector targeted with the most capital was information technology, scoring 30% of total deal value, or $97 billion. Healthcare and retail sectors also attracted high levels of investment, accounting for 13% of deal value each. Meanwhile, the industrials sector, with 858 deals, had the highest number of transactions.

Most of the largest private equity-backed buyout deals were in the US, including ADT Security Services’ $15 billion merger. In total, North American deal value represented $190 billion.

Private equity-backed exits also cooled slightly, following sharp growth in 2014 and 2015, according to Preqin. Throughout the year, 1,682 exits worth a combined $330 billion were made, compared to 1,859 exits totaling $431 billion in 2015, and 1,910 exits worth $465 billion in 2014.

However, Preqin said 2016 exit activity “remains on par with 2013 and surpassed all preceding years, as market participants continue to enjoy a favorable exit environment.”

“2017 seems likely to present a continuation of the levels of activity in the buyout and exit markets recorded in the past few years,” Elvin said. “Record high levels of capital available to fund managers, as well as continued strong fundraising, means that there is a lot of capital ready to be put to work, and activity is likely to be correspondingly strong.”

Jay Clayton, a finance lawyer whose clients include Goldman Sachs, Och-Ziff Capital Management, and Oaktree Capital, is likely to become the next head of the US Securities and Exchange Commission (SEC).

President-elect Donald Trump announced Wednesday that he intends to nominate Clayton for the chairman position. Mary Jo White, who has served as SEC chair since April 2013, announced in November that she would step down at the end of the Obama administration.

Andrew Ceresney, director of the SEC’s enforcement division, announced his exit a month later.

“Jay Clayton is a highly talented expert on many aspects of financial and regulatory law, and he will ensure our financial institutions can thrive and create jobs while playing by the rules at the same time,” Trump said in a statement. “We need to undo many regulations which have stifled investment in American business, and restore oversight of the financial industry in a way that does not harm American workers.”

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Clayton is currently a partner at Sullivan & Cromwell, where he practices law regarding mergers and acquisitions, private equity deals, leveraged finance, and regulation.

“If confirmed, we are going to work together with key stakeholders in the financial system to make sure we provide investors and our companies with the confidence to invest together in America,” Clayton said in a statement. “We will carefully monitor our financial sector, as we set policy that encourages American companies to do what they do best: create jobs.”

Under White and Ceresney, the SEC had brought a record 2,850 enforcement actions totaling more than $13.4 billion in financial sanctions, including “first-of-their-kind” cases in asset management, the SEC said. These actions included an increased focus on private equity fees, including high-profile charges against Blackstone and KKR.