Private equity firms are sitting on some $1 trillion in aging deals that they now must manage for the longer term. PE firms collectively own some 30,000 portfolio companies, worth an estimated $3 trillion. Nearly a third of those companies have been held for more than five years, years longer than was once typical.
“These are staggering numbers,” says Josh Smigel of consulting firm PwC. High interest rates, tariffs and economic uncertainty are gumming up the normal PE machinery, in which funds take stakes in private companies, improve their operations and spin them off to a buyer or public markets in order to recycle capital to their limited partners.
With the increased holding periods, along with elevated interest rates, the PE firms must increase portfolio company profits and enterprise value to achieve targeted rates of returns. Achieving attractive outcomes now depends on delivering operational performance and strategic transformation, PwC counseled in its midyear deal and private equity outlooks released today.
Take private
Mergers and acquisitions are likely to pick up as corporations look to exit underperforming assets to refocus on core businesses, reduce debt and boost cash flow, says PwC. Another propellant: activist investors looking to capitalize on market volatility and depressed valuations.
PE firms sitting on dry powder are finding attractive opportunities, especially in sectors of the public markets where they can get a discount on undervalued companies. Take-private deals this year are on pace to exceed last year’s tally, when the value of PE- and venture-backed take-private deals increased by 32% year-over-year to nearly $150 billion globally.
TPG Rise Climate acquired Stamford, Conn.-based solar developer Altus Power in February this year, with plans to take the publicly-traded company private.
Go public
There are signs that the window for IPOs may finally be widening. “We’re moving into a lean-in market, where buy side investors are willing to accept the more bullish case,” said PwC’s Mike Bellin at a media briefing held ahead of the report’s release.
The more than 30 IPOs have taken place this year, notwithstanding a pause after President Trump’s early April “Liberation Day,” have mostly performed well. Some 200 companies have filed to go public with the Securities and Exchange Commission, and are waiting for the right moment.
Special purpose acquisition companies, or SPACs, are also staging a comeback, with some higher-quality targets this time around. This week, sustainable fuels maker XCF Global Capital went public via a SPAC merger.
