Coming off a year when rising valuations limited fund managers’ ability to source and close deals, private equity leaders are anticipating another year of moderate deal flow volume. The recent PErspective Private Equity Study conducted by BDO USA found that only 15 percent of GP respondents predict they will close more than five deals in 2014, which is a drop from the 22 percent of fund managers who predicted in 2013 that they would close more than five deals.
However, despite this reduced expectation, we’re also seeing that fund managers are eager to put their capital to work and remain hopeful that they will deploy more capital in the year ahead. In fact, 36 percent of fund managers expect to invest more than $100 million in new deals and add-on acquisitions in 2014, which is a marked increase from last year when only 23 percent reported that they invested this same amount.
Taking a look at exit activity, fund managers are continuing to see longer holding periods, as well as a shift in potential buyers. More than half of the survey respondents (54 percent) indicated that their exit assumptions have changed, with a quarter of survey respondents reporting an increased focus on sales to strategic buyers and 15 percent anticipating an increased focus on sales to financial buyers.
As for investment targets, the majority of the survey respondents see Asia as the geographic market with the greatest opportunity for new investments in 2014, outside of North America, followed by South and Central America.
The BDO PErspective Private Equity Study is a national survey conducted annually that examines the opinions of more than 100 senior executives at private equity firms throughout the U.S. with $30 million to $70 billion in assets under management.