LBO Firms Getting Out Of Dodge – -Cashing Out Of Deals At Record Rate

With takeovers booming, private equity is in a rush to sell.
Buyout firms typically plan to sell companies some five years after buying them, having made financial and operational changes designed to increase their value. But that period is shrinking, as robust demand from companies, sometimes referred to as strategic buyers, allows private-equity firms to reap impressive gains in less time.
Private-equity firms now own a company for an average of 5.5 years, down from 5.9 years in 2014 and the lowest point since 2011, according to data provider Preqin. That decline reverses a trend toward longer holding periods in the aftermath of the financial crisis, when private-equity firms struggled to shed some companies. Before the crisis, the average holding period was about 4.5 years.
A flourishing takeover market has created ripe conditions for buyout firms to cash out of older investments and some newer ones, too. The dollar volume of U. S. deals reached $788 billion by the end of May, according to data provider Dealogic, a record for this point in a year.
‘I expect exit activity to remain extraordinarily strong because it’s the golden age of the strategic buyer,’ KPS Capital Partners LP co-founder Michael Psaros told attendees at The Wall Street Journal’s Private Equity Analyst Conference on Tuesday.

This post was published at David Stockmans Contra Corner on June 4, 2015.