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2016 Bain & Company Global Private Equity Report Summary

Core Content

The 2016 Bain & Company Global Private Equity Report provides an in-depth analysis of the private equity (PE) industry's performance in 2015, highlighting key trends in fund-raising, investments, exits, returns, and firm strategy. It emphasizes the importance of differentiation, value creation, and adapting to macroeconomic shifts for PE firms to thrive in a challenging and evolving market.

Main Points

1. Bain & Company's Role in the PE Industry

• Bain & Company is the leading consulting partner to the private equity industry, with a global network of over 1,000 professionals.
• Their services span the entire PE lifecycle: deal generation, due diligence, post-acquisition support, ongoing value addition, and exit strategies.
• They also assist institutional investors in developing best-in-class investment programs across asset classes.

2. Private Equity Market in 2015: A Strong Year Despite Challenges

• The PE market in 2015 was resilient, with strong cash flows and increased allocations from LPs.
• Distributions exceeded capital calls for five consecutive years, with a peak surplus of $66.3 billion globally in 2014.
• Despite modest deal values and record-high asset prices, PE continued to outperform public markets in returns.
• LPs remained confident in PE, with 42% planning to increase commitments in the short term and 51% over the long term.

3. Fund-Raising Trends

• Fund-raising was robust in 2015, with $500 billion raised annually since 2013.
• Global buyout fund-raising reached $175 billion in 2015, slightly less than 2014 but well above the previous year.
• Large buyout funds (targeting $5 billion or more) remained active, with 12 such funds still seeking $86 billion at the start of 2016.
• Funds closed faster and exceeded targets more frequently in 2015 than in any year since the precrisis boom of 2007.

4. LP Demand and Strategic Shifts

• LPs were hungrier than ever to invest in PE, with substantial increases in allocations.
• Cointvesting and secondary market participation became more common, allowing LPs to access more capital at lower costs.
• Shadow capital (non-traditional investments) reached an estimated $161 billion in 2015, or 26% of traditional capital.
• Secondaries gained traction as a way to diversify holdings and manage liquidity.

5. GP Supply and Competitive Pressures

• GP supply increased, with 318 global buyout funds on the road, aiming to raise $247 billion.
• The "shakeout" that was expected after the 2008 crisis did not materialize significantly, as only 6% of buyout fund AUM was affected, compared to 20% after the 2001 tech bubble burst.
• Bidding wars intensified due to abundant dry powder (record $1.31 trillion), leading to higher competition and shorter time limits for deal execution.

6. Investment Activity in 2015

• Global buyout deal value reached $282 billion, slightly higher than 2014.
• Deal count was modest, but larger deals (between $5 billion and $10 billion) saw an increase, signaling rising investor confidence.
• Asia-Pacific had the highest deal value, with $129 billion, outpacing Europe and North America.
• Deal values were still below pre-2008 levels, but investment activity remained consistent with the durable PE cycle since 2010.

7. Exits and Returns

• Exits in 2015 were strong, with floods of returns and positive net cash flows.
• Exit channels remained open, and returns widened the performance edge over public markets.
• Exit slowdowns were anticipated, as recession risks and interest rate increases loomed in 2016.

8. Future Outlook and Strategic Mandate

• PE firms are under a mandate to differentiate, as competitive intensity and recession risks rise.
• Strategic clarity, repeatable value-creation models, and sector specialization are key to success.
• The report emphasizes the need to anticipate and invest behind the new macro forces reshaping industries and economies.

Key Takeaways

• PE remains resilient, with strong cash flows and LP confidence.
• Fund-raising and investments have reached new levels, but deal values and returns are still below pre-crisis peaks.
• LPs are increasingly using cointvesting and secondaries to manage their PE allocations.
• Dry powder remains at record levels, creating intense competition among GPs.
• Differentiation and value creation are critical for future success in a maturing and increasingly competitive PE industry.