Dry powder will drive 2012 dealflow - Bain

Olivier Marty
11 May 2012

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Extensive dry powder, few exit opportunities and tough fundraising conditions will be the major drivers of private equity globally, according to Bain & Company.

Bain's third global private equity report claims around 50% of funds raised during 2007-2008 have not yet been invested. This "structural capital overhang" is estimated to reach €1tn.

Bain believes that global dealflow will need to be maintained at 2010/2011 levels for the next two years to fully absorb this capital. Failing to fully invest by the end of 2013 would force GPs to cancel many of their LP commitments and to renounce to their management fees or even carry.

Furthermore, exits are not expected to substantially increase in 2012, as many portfolio companies still have too low valuations to enable GPs to make a return and exit routes seem to be blocked, particularly for trade sales and IPOs. Bain estimates unsold assets are equivalent to around double the amount of dry powder currently in the market.

Lastly, Bain states that, despite an ambitious global fundraising target – equivalent to around 2.8 times the amount raised in 2011 – GPs will have a hard time raising in 2012 as LPs are reaching their allocation targets and too many GPs are seeking capital.

The capital overhang will continue to drive global dealflow to higher levels in 2012, according to Bain, but a tough exit environment and competitive fundraising will keep the pressure on GPs for the remainder of the year.