2017 Global PE Watch - EY

1 2017 Global PE WatchIn-between days2017 | the Global PE Watch .. 2 Foreword .. 3 Key stats at a glance .. 4 Introduction .. 6 Fundraising .. 7 Acquisitions .. 12 Exits .. 21 Emerging markets .. 23 Outlook for 2017 and beyond .. 26 Key 27 Notes .. 281| 2017 Global PE Watch In-between days22017 Global PE Watch In-between days |Private equity (PE) remains an industry still in the early stages of its evolution. Large fi rms continue to diversify, smaller fi rms continue to develop and pursue niche strategies and limited partners (LPs) are allocating ever-increasing amounts to the asset class.

2 The result is an industry which looks very different today than it did ten years ago, and which will see even greater change over the next decade. Firms that remain successful through this evolutionary period will be those that can stay disciplined in their investment philosophies and thorough in their diligence, yet fl exible enough to seize new opportunities and address new markets. The 2017 Global PE Watch articulates some of the key trends that defi ned PE in 2016, including trends in fundraising, acquisitions, fi nancing and exits.

3 More importantly, the report breaks down some of the key emerging issues and opportunities that are poised to defi ne the industry as it continues to grow over the next 5 10 years and beyond. We hope you ll fi nd this report illuminating and insightful, and encourage you to reach out to any of our PE professionals listed on the back of this report in order to arrange a more in-depth conversation. Join the conversation! For the latest trends and insights, follow EY PE on Twitter, at @EYPrivate Equity.

4 For more than 30 years, EY has helped many of the world s most dynamic and ambitious PE-backed companies and their sponsor companies grow into market leaders. Our professionals draw upon their extensive experience, insight and resources to help growing businesses achieve their potential. To learn more, visit the Global PE WatchIt s no secret that the world is changing faster than ever before. The forces of globalization, technological advancement and demographics are powering dramatic changes to the ways that we work, the places we live, the ways we get around and the people with whom we interact.

5 The Digital Revolution, the Fourth Industrial Revolution whatever we choose to call it, the bottom line is that outside periods of Global confl ict, there is no time in human history where so much about the way that we experience and interact with the world has changed so quickly. Amidst this rapid change, Global governments are struggling to respond and adapt. Many of the old-line policy options for stimulating investment, managing currencies and spurring economic growth are experiencing sharply reduced effectiveness.

6 Central bank-induced distortions continue to permeate the market. Indeed, negative interest rates once unthinkable are now a reality for a quarter of the world s economy. Throughout this time, PE fi rms have continued to grow and evolve, expanding beyond their roots in fi nancial engineering, to creating value through operational transformation. After several years of elevated exit activity, PE fi rms, against long odds, have now ushered the vast majority of their portfolio companies acquired during the last buyout boom to a successful resolution.

7 Waves of distributions to LPs have affi rmed their faith in the asset class, precipitating new investment and leading to record levels of unspent commitments of commingled funds, or dry powder. Which brings them to their current dilemma. With anemic gross domestic product (GDP) growth throughout the developed economies, and slowing in many of the emerging markets, companies throughout the world have gone all-in on growth through M&A. Facilitated by a low interest rate environment of unprecedented length, companies pushed M&A activity to record levels in 2015, and valuations moved higher in lockstep.

8 While 2016 has seen some respite on the valuations front, valuations remain high, and PE fi rms are challenged to underwrite deals for attractive targets at prices that leave headroom for growth. Firms thus fi nd themselves in a liminal space, having completed the last cycle, while waiting for the next to begin. While fi rms are pursuing a number of strategies in order to remain active in the current environment among them, distressed and opportunistic investment, and moves downmarket into growth capital and mid-market the next deployment cycle for PE has yet to really get underway.

9 The hesitation is refl ected in the fi gures PE activity totaled US$319b in 2016, down 4% from 2015, and miles away from the US$740b recorded in 2007. This is despite the industry having a war chest of more than US$525b, well above what the industry held in 07. Firms are challenged in putting these assets to work in an environment that allows no room for error, while keeping Watch for a widespread repricing that may or may not be imminent. Nonetheless, we remain optimistic. Private equity fi rms are used to dealing with challenging environments.

10 Indeed, they thrive on them. Throughout its history, the industry has optimized itself and its model to the operating environment, and the present period will be no exception. Success will depend on fi rms ability to remain patient, disciplined, innovative and opportunistic as they look for the right entry points and the upswing of the next investment cycle. 3| 2017 Global PE Watch In between days2 Herb EngertEY Global Private Equity LeaderForewordPE funds closed2007200820092010201120122013201420 152016 Total commitments(US$b)Announced PE dealsTotal deal value (US$b)M&A exits (US$b)PE IPOs (US$b)