PitchBook News - The new PE playbook

PE-led deal activity finally felt the bite of higher borrowing rates in Q3. The total value of buyouts declined by 20.4% from Q3 2021. That's on closed deals, many of which were negotiated months ago.

On announced deals, we believe the decline could be twice that, as indicated by Blackstone's Q3 report this past week which pointed to a 45% year-over-year decline in deployed capital.

 

Even more dramatic is the decline in exits, which are running at 30.1% of year-ago levels.

So, how has PE adapted? 

For one, PE is doing more public-to-private deals. Take-privates are on track for a second consecutive year at $100 billion or more in deal value for the first time since 2006-2007. Not only are these more seasoned companies from a credit standpoint, but they also allow mega PE funds to deploy their mega amounts of dry powder at beaten-up public prices.

Second, PE is finding a new source of funding in private debt funds. Four of the last big take-private deals announced in Q3 used private debt. While this source of financing typically maxes out at 50% of the purchase price and not the 70% that traditional bank loans used to cover, that source of funding has dried up as the new-issue leveraged finance market is all but frozen.

Lastly, PE firms continue to drive strong top-line growth in portfolio companies. In its Q3 results, EQT estimated that its PE portfolio was still growing revenue at 20% through August. Blackstone indicated 17% revenue growth for its PE companies in Q3.

Growth like that goes a long way toward covering higher interest expense.

For more data and analysis, click to download our free Q3 US PE Breakdown.