Many market participants have been telling Secondaries Investor they expected deal volume for 2019 to exceed $90 billion, some more than $100 billion. Quite a few expected the proportion of GP-led deals to touch 50 percent, a significant milestone in the development of the market. While early data points to another record year in overall volume, growth has slowed, markedly in some areas.
In a presentation at the IPEM conference in Cannes this week, Greenhill gave attendees a preview of its full year report for 2019. The advisor estimated transaction volume at $88 billion, compared with $75 billion the prior year – yes, another record year. But second-half volume exceeded first-half by just 10 percent, compared with a 111 percent jump between H1 and H2 in 2018. Of the $88 billion, $26 billion was GP-led deals.
“A lot of people thought at the beginning of the year that we’d see a significant increase in GP-led volume,” says Greenhill managing director Bernhard Engelien. The rise was only 8 percent – from $24 billion to $26 billion. Compare this with 2018 when the jump was 71 percent.
There are a few factors at play. Dampening economic sentiment has led to a decline in pricing of 4 percent among buyout funds, 6 percent in real estate and 6 percent in venture capital, according to Greenhill data. When it comes to portfolio sales, this has caused opportunistic sellers to pull back from the market or at least hold tight for a quarter or two.
At the same time, increasingly risk-averse buyers have become more selective about what they back. There was a decline in the volume of Asian-based funds that changed hands in 2019 with some going for discounts of 30 percent or more, which in Engelien’s view is indicative of that caution. Greenhill put the number of failed GP-led deals at between 15 and 20.
“GP-led deals really need a proven business rationale to get over the line in today’s market,” says one senior London-based buyside source.
The bigger picture is positive. Despite the buoyant fundraising environment, the ratio of dry powder to deal volume in the last 12 months is 1.8x, compared with 2.3x at this point last year, suggesting a need for more capital. The market continues to innovate, with single-asset deals coming from nowhere to account for 27 percent of GP-led deals by volume last year, Greenhill estimates. There’s plenty of room for growth, just perhaps at a slower pace than some have been hoping for.
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