Placement agent MCAM Group has reported a 48% increase in private equity funds exiting investments through merger and acquisition (M&A) activity during the year to 1 November 2024.
There were 177 successful exits in the 12 months to 1 November, the company found, up from 120 the year before and in line with the 181 exits reported in 2021-22.
The company said the increase was in part due to interest rates reaching a post-financial crisis high point, which had subdued other M&A and listing activity.
Lars Bjoergerd, managing director of MCAM Group, said an additional factor was an improvement in the availability and pricing of acquisition finance, which has aided “strategic buyers and other potential bidders for private equity-owned companies”.
“The M&A market has come back to life in UK, greatly improving the options for private equity funds looking to exit their investments,” he said. “Distributions to investors are still an issue but the environment is now a lot healthier.”
The UK listings market was “still in the green shoots stage of its recovery”, Bjoergerd added, and may take some time to get back to its long-term average. This meant the listings route for private equity exits was “far less dependable”.
Despite this positive outlook, recent distributions from private equity funds have been disappointing.
Research conducted by the Orange County Employees Retirement System, a US-based public sector pension scheme, estimated that distributions from private equity funds were running at 6.5% of the value of funds at the beginning of the year. This compared to investor expectations of approximately 20% a year.
MCAM’s Bjoergerd explained that private equity managers without an established track record of successful exits may come under more scrutiny from investors such as pension funds over how they distribute gains.
“Institutional investors such as pension funds, endowments and foundations need regular distributions from the private equity funds that they invest in and closely monitor distributions to paid-in capital levels,” Bjoergerd said.
“Until the exit environment is back to full health, investors are going to wary of investing in funds that have not been able to make distributions at the expected levels.”
Private equity exit conditions ‘stabilising’
Other private markets managers have also forecast improvements in private equity distributions in 2025 as liquidity conditions improve.
In an outlook article published earlier in December, Schroders said exit values globally “seem to be stabilising”.
The asset manager added: “Still, there remains a significant valuation discount for small to mid-sized buyouts when compared to their larger peers, suggesting a difference in perceived value within the market.
“Valuations on the venture capital side have also begun to rebound, an encouraging sign given the previously negative performance of this segment.”
In its private markets outlook for 2025, BlackRock said global quarterly exit values were settling around pre-pandemic levels amid a more supportive interest rate environment.
“A more active exit market, coupled with an increased focus from [private equity managers] on returning capital, is offering relief to investors seeking distributions,” BlackRock stated. “Last year saw a turning point with distributions overtaking capital calls for the first time in eight years.”
Meanwhile, the weak listings market has meant that venture-backed companies tend to remain privately owned for longer. Morgan Stanley in its outlook for private equity said this could lead higher demand for growth capital to fund the development of these companies.
Further reading
Performance, liquidity concerns affecting investors’ private markets decisions (9 December 2024)
What the government’s own numbers say about investing in private markets (26 November 2024)
