Over the last five years (2019-2024), US PE funds in aggregate invested $1.5T more in platform and add-on transactions compared to exit volumes via sales and IPOs. Although exit activity picked up in 2024, low exit volumes in 2022 and 2023 resulted in a record number of 11.8k US PE-backed companies remaining in portfolios at the end of 2024. Since 2019, the inventory of PE-backed companies in the US increased by over 2.5k – an increase of more than 25% in five years.
While the reasons for the slower exit environment have changed over time, (COVID, interest rates, potential macro headwinds, US election uncertainty and then tariff concerns) the outcome has always been the same: Exits were being delayed, leading to increased hold periods of PE-backed companies and a correspondingly larger universe of portfolio companies.
Data shows that at the end of 2024, over 3.2k companies or 27% of the total 11.8k US PE-backed universe were held in portfolios for seven years or longer, the highest percentage over the last ten years. This represents about 1.2k more companies compared to the end of 2019, when just 2.0k of the US PE-backed inventory was 7+ years old.
To provide liquidity for this growing inventory of US PE-backed companies, GPs are looking for a more benign exit environment where (i) buyers feel more confident to transact at valuation levels that meet sellers’ expectations and (ii) IPO markets are open to provide an alternative exit route for larger companies.
In the meantime, many LPs and GPs may turn to the secondary market for liquidity until exit conditions improve more broadly. At the end of 2024, global secondary buyers had an estimated $216B in available dry powder ready to be deployed across LP purchases and GP-led transactions. While the secondary market is still relatively small compared to the direct PE market, secondary buyers can provide strategic liquidity solutions in situations where LPs or GPs cannot or will not wait any longer for exit conditions to improve. With a substantial amount of dry powder and an appetite for portfolio solutions and single asset transactions, the secondary market appears ready to partner with LPs and GPs to provide much needed liquidity.
SOURCES
All US Private Equity information sourced through PitchBook 2024 Annual US PE Breakdown
All Secondary information sourced through Evercore Full Year 2024 Secondary Market Review
IMPORTANT INFORMATION
Past performance is not a guide to future results and is not indicative of expected realized returns.
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