2007 Was Banner Year for Private Equity

2007 was a “halcyon period” for private equity, according to a new study by Ernst & Young. PE exit returns, fundraising and deal volume all broke records during the year, though the latter six months were strongly affected by the global credit crunch.

E&Y’s sample of 100 PE companies outperformed public company benchmarks.

By smaller margins, PE businesses also increased their productivity.

Some of the Study’s key findings:

• 2007 exits grew company value by 24%, double that of public companies
• Deals in the 500 - 1 billion dollar range were the most successful.
• Germany was the year’s most successful geographic location: PE exit value growth outstripped public EV growth by 20 points.
• technology and telecoms were the highest growth sectors
• when enterprise growth was 32%, PE acquisitions had the highest rate of success.

The changing environment led many PE companies to become net sellers during the year, reaping significant cash windfalls.

Despite the worsening state of the economy over the year, strategies of PE-owned firms that focused on growth over core business activity had a greater average profitability. While the latter average was just 11%, the former was 17%.

Perhaps most importantly, E&Y found that the most successful PE firms shared a similar aggressive approach to building business value, reinforcing findings in other recent research on the subject.