Yahoo Finance

Private equity's paltry flow of exits sprang to life at midyear, ending a yearlong decline and setting up the chance for a rebound.

Exit value totaled $87.3 billion in Q2, a 67% jump from the previous quarter and the first sequential quarterly rise in value in 12 months, according to PitchBook's Q2 2023 US PE Breakdown.

"It looks like PEs are finally sharpening their pencils and really applying more resources to the sell side," said Tim Clarke, PitchBook lead analyst and co-author of the report. "They're really bearing down on selling—equally as much as buying."

Four deals over $1 billion, all announced late in the quarter, helped "stop the bleeding," Clarke said.

After a blockbuster year of exiting investments in 2021, firms' asset sales and IPOs waned as public and private valuations both declined. The resulting drop-off in exits surpassed that of the global financial crisis 15 years ago.
   
The decline in dealmaking on the buy side hasn't been as steep, bringing the exit-to-investment ratio for Q2 down to a low of 0.32x, according to the report. For every three deals executed, the industry exited just one investment.

Always a reliable buyer of PE assets, corporations were responsible for a record-breaking 65% of exits in Q2, in what Clarke said was a sign of a healthy private capital ecosystem.

"It's the food chain," he said. "The VC-backed startups get sold to the PEs that sell to the strategics. That's how it's supposed to work."

In mid-June, Thoma Bravo agreed to sell fintech software provider Adenza to Nasdaq for $10.5 billion in cash and stock. The tech-focused PE firm had created Adenza through the combination of Calypso Technology (acquired in 2021 for $3.75 billion) and AxiomSL (purchased in 2020 for an undisclosed amount).

Vista Equity Partners followed a similar playbook when it agreed on June 26 to sell IT management software developer Apptio to IBM for $4.6 billion. Vista had taken the company private in 2018 at a valuation of $1.94 billion.

The valuations that Thoma Bravo and Vista achieved on those deals—20.2x revenue for the trailing 12 months for Adenza and 12.5x for Apptio—were encouraging for a further uptick in exits, Clarke said.

In the last week of June, two PE-backed companies debuted on the NYSE.

EQT listed Kodiak Gas Services on June 29 at a market capitalization of $1.54 billion, raising $256 million through its IPO. On the same day, Ares Management-backed Savers Value Village went public  at a valuation of almost $4 billion, raising just over $400 million in the share sale.

To be sure, Q2's uptick in exits—and even higher bounce in exit value—are signs of recovery for the PE industry. But many more deals need to close for the industry to avert a pile-up of deals that could dampen fund performance and stymie fundraising.

"PE firms have done plenty of buying. They have to start selling stuff," Clarke said. "They've got 10 to 12 years to wind down their traditional … funds, but we just lost two years where not much happened on the exit front."