Lack of PE Exits Causing a Pile Up?

While the private equity deal environment continues to be fairly active, a lack of exits remains an issue. The attaches PitchBook article details what the future may hold if the absence of exits continues.

From the article: “Private equity’s problem began with a steep decline in exits in Q1 2022. By the end of March 2023, the total deal value and the number of exits had dropped for three straight quarters. Compared to Q4 2021, when the industry sold off $201.2 billion in companies and assets, US PE exit value in the first quarter of this year was down 72%. Placed into historical context, the recent drop-off is even steeper than what the industry saw during the global financial crisis of 2007–2009.”

The private equity and venture capital markets are much like an assembly line. There are inputs at the start of the line, and outputs at the end of the line. The outputs, in this scenario, are company exits. Those usually take the form of an IPO or a sale to a larger industry strategic.

Like any properly functioning assembly line, if the output exit is blocked, that will cause the inputs to pile up. Eventually the system will break.

In this particular case, the exit was primarily blocked by an aggressive interest rate hike campaign by the Fed. A reasonable person could argue that if the market fears continued…