CHICAGO--(
BUSINESS WIRE)--After private equity activity leveled off in 2015, industry leaders have moderated their expectations for the coming year, according to the seventh annual
PErspective Private Equity Study by BDO USA, LLP. Ninety-five percent of firms plan to close five deals or less within the coming year, a slightly higher projection than last year's survey, when 87 percent of respondents said they would close no more than five deals. Overall, the study found that firms are largely planning to replicate 2015 investment levels and priorities in 2016 as they wait out current economic fluctuations.
Investment levels are also more conservative, with 93 percent of managers expecting to invest $250 million or less in the coming year, up from 88 percent in 2015. Further, approximately 66 percent of firms highlight investments in new platform deals as their chief deployment of capital over the past 12 months, compared with 67 percent in 2015. Last year, add-on deals were the second-most cited use of capital, with 24 percent of fund managers seeking out this type of investment.
Private equity leaders also believe the challenges they faced in 2015 will hold steady in the coming year. As in our 2015 study, pricing remains the top challenge respondents expect PE firms to face this year, cited by over a third of those surveyed. At the same time, 64 percent of fund managers cite gaps between buyer and seller pricing expectations as their top obstacle when it comes to closing deals, up from 48 percent in 2015. With the past few years largely favoring the sell-side, many sellers may still be trying to command high prices despite economic realities beginning to favor buyers.
"After the successes private equity experienced in 2014, market unevenness and a sluggish deal landscape led to a plateau in 2015. As we kick off 2016, fund managers are being prudent about deploying their dry powder as they wait to see how the economy continues to recover and consider industry shake-out of weaker players," says Lee Duran, partner and Private Equity practice leader at BDO.
Despite fund managers’ conservative 2016 planning, 70 percent of respondents still feel optimistic about the investment environment for the year ahead, up from just over half of respondents (56 percent) in 2015. Forty-one percent of respondents believe that private equity raises will be a primary factor in driving deal flow, while 43 percent cite private company capital raises and sales.