The reach of Private equity has increased both in size and geographically in past few decades. However, this reach has largely been limited to the buyout industry, which, amid current credit market woes, is beginning to cool off from its blazing-speed pace of deals. Nonetheless, many significant events have occurred in recent past.
In early 2007, the buyout industry was enjoying a growth never before seen by investors: Investments-were growing and returns too were growing. Venture capital industry was largely overshadowed by its buyout counterpart, as venture returns have been mediocre in the recent past. Nonetheless, despite recent woes brought on by the credit market slump, it is clear that today’s investors feel both forms of private equity bear a significant impact on world economy. From its humble beginnings PE finance has now grown into a strong force.
A $686bn of private equity was invested in 2007, up over by 33% as compared to previous year. Despite growing crisis in the financial markets in the latter part of the year, activity was split equally between the first and second half of the year. Buyouts had highest share of 89%. Early indicators show that activity is down in the first half of 2008 in comparison to the same period in 2007. The contraction in the credit markets caused by the sub-prime crisis triggered a slowdown in private equity financing and it became more difficult for private equity firms to obtain debt financing from banks to complete private equity deals.
The 10 largest private equity firms in the world are (As of 2007 End):
1. The Carlyle Group
2. Goldman Sachs Principal Investment Area
4. Kohlberg Kravis Roberts
5. CVC Capital Partners
6. Apollo Management
7. Bain Capital
9. Apax Partners
10. The Blackstone Group
The current financial market has sharply limited the credit necessary to carry out Private Equity deals today, and private equity firms have suffered as a result. In 2008, global buyout activity fell by 74% to $180 billion, a remarkable decline that signifies a decline in buyouts not only in the struggling U.S. market but globally as well. Private equity firms have certainly felt the adverse effects of the global credit crunch, as the number of buyout deals has fallen considerably to a four-year low.
Private equity firms have had exposure of some kind to 62% of global companies that have defaulted on their debt this year.