The chart listed below programs the bump in holding durations, peaking at 5.6 years in 2014. Given the extreme economic impact due to the coronavirus, the average holding duration need to increase as private equity firms delay exits, just like last time. Longer holding periods from private equity companies results in less M&A deals on the sell-side from PE stores.
I occasionally upgrade the personal equity portfolio company holding durations to track this pattern gradually. I thought this would be an excellent time to append another data point to the chart, just before this metric is affected by the COVID-19 economy.
2020 YTD Median Holding Period = 4.8 years
Minutes = 3.0 years, (early 2000s) and 3.5 years (2008 )
Max = 5.6 years, (2014 )
A Few Comments on the Historical Trend.
The last economic crisis (2008– 2010) had a visible effect on the holding periods for private equity portfolio business. Particularly, financial investments made just prior to the economic crisis, at peak appraisals, were held longer.
The chart below shows the bump in holding durations, peaking at 5.6 years in 2014. These ill-timed acquisitions needed longer holding periods to recognize respectable returns.
From 2014– 2018, mean holding durations for portfolio company exits showed a slight-but-steady downward trend, then leveled off just listed below 5 years
Provided the extreme financial impact due to the coronavirus, the average holding period must increase as personal equity firms delay exits, much like last time. Longer holding durations from personal equity companies results in less M&An offers on the sell-side from PE shops. This, naturally, may be offset with increased investment on the buy-side, as opportunistic PE firms with offered funds recapitalize/ restructure operating business that otherwise might not make it through the present economic climate.
For those PE companies with dry powder, this could represent an opportunistic season to acquire properties at deep discount rates while likewise protecting the work and tradition of those brands going forward.