Daily Update: A Grim Year Continues for Private Equity
Today is?Tuesday, December 13, 2022, and here’s your?curated selection of essential intelligence on financial markets and the global economy?from?S&P Global . Subscribe?to be notified of each new?Daily?Update.?
For the private equity industry, the halcyon days of 2021 are firmly in the rearview mirror. In the final months of the cheap money era, wealthy and institutional investors searching for yield were happy to gamble on new teams with indeterminate track records. As a result, 2021 was a high-water mark for new entries, total transaction value and number of deals completed in private equity. The numbers for 2022 aren’t nearly so sunny. The good news for the industry is that dry powder — committed but unallocated capital — remains in abundance. The bad news is that new valuations need to be generated, which reflect fair (bear) market value.
Last year ended with a frenzy of dealmaking. In the fourth quarter of 2021, private equity and venture capital entries hit $136.72 billion, and the number of deals maxed out at 7,542. This year,?new entries dropped 53.5% ?to $63.51 billion, with only 2,936 deals, according to S&P Global Market Intelligence data. Total deal value also fell over 37% to $677.23 billion for this year, from $1.079 trillion in 2021. The biggest declines were in the energy and utilities sector, which has fallen 90% year over year, and in technology, media and telecommunications, which has decreased 45% year over year. The industrial sector was a rare bright spot, pulling in $18.70 billion in November, up from $11.37 billion during the same month last year. While there are still weeks to go in the fourth quarter, it is unlikely that there will be a significant reversal of current trends.
The Big Four publicly traded private equity firms — Blackstone Inc., Apollo Global Management Inc., KKR & Co. Inc. and The Carlyle Group Inc. — posted results that reflect the?challenging conditions in the markets . Earnings calls for all four firms at the end of the third quarter were subdued, reflecting the fact that they all posted a negative total return performance. Carlyle saw net profits decline by nearly half year over year, lending urgency to its search for a new CEO. On the plus side, assets under management for all four firms are up compared with last year, demonstrating that dry powder continues to be a strength in the industry.
Valuation in private markets is as much an art as a science. But this year, a drop in M&A activity has deprived private equity firms of the comparable market information they would use to?price their assets . This is forcing firms to rely on public market data for comparables, but this is challenging given the upheaval, and losses, in public markets. With few transactions to price against, and public companies representing an inexact basis for comparison, there can be a temptation to inflate valuations in expectation of a turn in the market. However, given the grim results posted by the Big Four, it looks like they have priced in significant losses on portfolio assets.
The silver lining to the dark cloud in private equity markets is that with a bull market and credit becoming more expensive, there may be an opportunity to pick up assets at a discount. "Oftentimes, our best vintages result from investments made during periods of market distress," said KKR CFO Robert Lewin, according to S&P Global Market Intelligence.
Today is?Tuesday, December 13, 2022, and here is today’s essential intelligence.
Written by Nathan Hunt.
Economy
Recruitment Downturn Signals Cooling Wage Growth In U.K.
Signs of a marked cooling in the U.K. labor market were provided by the latest survey of recruitment agencies, which saw the number of people placed into permanent jobs fall sharply for a second successive month in November. Staff availability problems meanwhile eased alongside slower growth of demand for workers from employers, the latter pointing to weaker job vacancy gains.
—Read the article from?S&P Global Market Intelligence
Capital Markets
Global Debt Leverage: Cash Flow Negative Corporates Could Double In 2023
As the Russia-Ukraine war drags on and major central banks continue to fight inflation, global corporates face a triple-whammy of lower growth, squeezed margins and deteriorating financing conditions in 2023. Worsening conditions in 2023 could temper this year's tentative rebound in average earnings. Our stress tests show less-creditworthy corporates are still vulnerable. Under S&P Global Ratings’ base case, cash flow negative firms would rise to 11%, from 8% in 2021.
—Read the report from?S&P Global Ratings
Global Trade
领英推荐
U.K.'s 'Last Resort' Coal Units Called And Then Canceled As Imports Flood In
U.K. power system operator National Grid Dec. 12 instructed two 570-MW coal units at Drax to prepare to generate amid freezing, calm conditions, only to cancel the order as power imports ramped up. The Drax coal units had been contracted earlier in the year as a last resort to ensure the security of supply. Two 400-MW coal units at West Burton A were also contracted but were not called this time.
—Read the article from?S&P Global Commodity Insights
Sustainability
Path To Net-Zero: Datacenter Demands Push Amazon, Big Tech Toward Renewables
Big Tech companies' overall emissions have continued to rise despite heavy investment in renewable energy projects. Now, growing pressure from shareholders and lucrative federal tax benefits are likely to drive those investments significantly higher. From 2014 to 2021, the largest clean energy customers by announced megawatt volume were Amazon.com Inc., Meta Platforms Inc., Google LLC and Microsoft Corp., according to data from the Clean Energy Buyers Association.
—Read the article from?S&P Global Market Intelligence
Energy & Commodities
Commodities 2023: Record Brazilian Soybean Harvest Points To Oversupplied Market In MY 2022-23
Brazil is on track for a record high soybean harvest in the marketing year 2022-23 (January-December 2023) going by the forecasts of commodity consultancies and government-owned institutions, likely signaling a looming oversupply that will linger until at least mid-2023. The average of estimates by the various organizations has the world's top soy supplier producing a record 152 million mt of soybeans in MY 2022-23, up 20% year on year.
—Read the article from?S&P Global Commodity Insights
Technology & Media
Global 5G Survey: Operator Pace Toward Open RAN Less Urgent
Open radio access network, or open RAN, technology, which leverages cloud- and software-based solutions to enable 5G service deployment, is still viewed with some caution by wireless operators, according to Kagan's 2022 global survey of 82 mobile network decision-makers. In fact, year over year, the number of respondents claiming they will use open RAN exclusively to build their 5G networks has dropped by 5 percentage points, from 39% in 2021 to 34% in 2022.
—Read the article from?S&P Global Market Intelligence
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