Coming on the heels of one of the most prolific quarters of private equity (PE) investment on record in 4Q 2012, deal-making in the U.S. started off slow in 2013, as was largely anticipated. The pace of investment did accelerate throughout the year, but rising valuations for both public and private companies, a high level of competition and a dwindling number of attractive targets made deal sourcing difficult. To that end, PE deal flow fell 14% in 2013 to 2,124 transactions. Although deal flow was down, capital invested in 2013 rose to $426 billion—its highest point since 2007—thanks to a flurry of deals with a price tag of $2.5 billion or more.
The difficult deal sourcing environment and a renewed focus on operational improvements has resulted in a noticeable shift in how PE firms invest. Platform buyouts shrunk to roughly one-third (32%) of all PE deals in 2013—the smallest share on record—and were surpassed by add-on acquisitions for the first time ever. In addition to more add-on deals, investors also executed a higher proportion of growth/expansion deals, which now comprise nearly a quarter (23%) of all PE transactions.
