Private Equity Market Insights - June 2024

Private Equity Market Insights - June 2024

PE NAVs

The Q1 2024 NAV cycle is now behind us and valuations have increased across our portfolio by circa 5% during the quarter. While strong public markets could be viewed as a positive backdrop for PE valuations, what we are seeing from PE managers is an understandable reluctance to mark-up company valuations in line with public comps, absent significant operating performance or an actual company sale at a premium to current valuation. This is a positive development, and a continuation of this trend will lead to more comfort around the accuracy of PE manager valuations.

Fundraising

The PE industry continues to operate in a much-changed fundraising environment which is likely to be the case for a number of years. Market leading PE managers will still raise very significant amounts of capital, but will be more tactical as to when they return to the market to kick-off a fundraise. DPI (distributions to paid in capital) on prior funds is a key focus for all PE investors and while no guarantee of a strong fundraise, it is certainly a metric that all PE managers have prioritised. The more benign debt market environment in H1 2024 has led to an increase in the number of dividend recaps as an alternative means of distributing capital to investors.

Exit Activity

The uptick in announced exits over year end has continued at a modest pace, with a considerable distance to travel to clear the backlog generated by the slowdown in distributions in 2022 and 2023 in particular. Across our portfolio we have seen exits to trade buyers, financial sponsors and via the IPO market, in addition to the liquidity generated by dividend recaps as mentioned above. We have seen a number of these exits at a significant premium to their carrying valuation. This is a source of optimism and confirms that high quality companies remain highly sought after and can exit in a timely fashion at significant multiples. The challenge for the PE industry remains the sale of average/good rather than great companies.

The IPO market is a more viable exit option for PE owned companies than was the case in 2023. Renk Group AG, the German industrial manufacturer, mentioned in our previous article, continues its strong performance since successfully listing on the Frankfurt Stock Exchange in February. Permira however shelved plans to IPO Golden Goose on the Milan Stock Exchange in recent weeks. A number of factors have been cited, ranging from the expected Golden Goose IPO valuation, share performance of previously listed PE owned companies, to a general stock market nervousness in Europe surrounding the upcoming French general election in particular. The IPO exit route remains a difficult path for PE owned companies to navigate.

Secondary Deal Flow

The window of real opportunity in secondary private equity remains open and will do so for a period of time until the exit backlog is cleared and distributions resume at their historic pace. Secondary sales need to happen to generate liquidity. The moderate uptick in fund NAVs in recent quarters will help narrow pricing expectations between sellers and buyers. Sellers have the comfort of trading off slightly higher NAVs while buyers have increased confidence in the validity of pricing as PE managers are reluctant to mark-up companies absent significant valuation milestones. We continue to actively diligence secondary fund positions with a view to adding to the three secondary fund positions purchased in the first half of the year at discounts in excess of 30%.

Contact Us

For further information about the Key Capital – Private Equity Program, email or call us at:

Email: jp.maguire@keycapital.ie

Phone: +353 1 638 3850