Some Quarterly Industry-Level Private Equity Deal Flow

August 12, 2013

Recently, private equity research firm PitchBook and CPA firm McGladrey released their Q3 accounting of deal flow for four key industries: Business Products and Services, Consumer Products and Services, Health Care, and Information Technology. Of the four industries covered, only one – Information Technology – experienced an uptick in deal activity from the Q1 2013 to Q2 2013.  Here are the details.

The Information Technology industry saw 65 deals during the Q2, an increase of 13 over the prior quarter and almost flat from the number of deals during the same quarter of 2012. On dollar volume, the amount of funding increased from a low of $6 billion in Q1 to $13 billion in Q2.  Although conditions generally improved in the second quarter, deal flow and volume are on track to come in 78 deals and $20 billion lower than in 2012.

In terms of the detail behind the numbers, software received just under half of the total investment at 48 percent, followed by communications and networking at 25 percent, and services at 15 percent.

The second industry covered by the report is the Health Care industry.  Overall, the Health Care industry experienced a poor quarter regardless of how the data are sliced, with total deal volume coming in at $4 billion on 37 deals.  The 37 deals in Q2 are the lowest in at least the past six years and put the annualized 2013 figure on pace to be the third lowest in the prior 10 years, with only 2004 and 2009 experiencing lower deal volume.

On the details behind the decline, the pharmaceuticals and biotechnology sector continues to be a laggard, suffering from government regulators pushing discovery or idea conception to consumer to eight to 10 years.  Overall, health care services captured the largest percentage of deal activity at 41 percent, followed by technology systems at 24 percent, and devices and supplies at 19 percent.

The third industry covered by the report is the Consumer Products industry.  The number of deals came in at 64, the lowest quarterly figure in at least the past six years as private equity investors continue to be somewhat cautious of the uber-regulated industry.  Overall, total funding came in at $30 billion, putting the sector on track to attract $94 billion in private equity investment.  Should the $94 billion figure be reached, that would place total deal volume for 2013 at the highest level since 2008.

The last industry is the Business Products and Services industry.  In Q2, total deals came in at 95, the lowest since at least 2007.  As to dollar volume, should the first two quarters of 2013 be indicative of the last two, total dollar volume would come in at $38 billion, a decline of $47 billion from 2012 and the lowest since bottoming out at $26 billion in 2009.

Overall, according to PitchBook and McGladrey, private equity investing conditions could aptly be described as tenderly weak through the first half of 2013, with Information Technology the sole industry of the four covered experiencing a positive increase from Q1 2013 to Q2 2013.

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