Over the past five years, the types of buyout deal in which fund managers complete have changed significantly. In 2006, a total of $638bn of buyout deals was recorded globally and the two key areas of investment at this time were buyouts and public to private deals, accounting for 44% and 47% of the total value of deals respectively. Despite this, public to private deals accounted for a far smaller proportion of the total number of deals, at just 4%. This is due to these deals being, on average, far larger than buyout deals, with a sizeable investment needed to acquire a majority stake in a listed company. In contrast, the number of buyout deals constituted 59% of the total, significantly higher than the proportion of total value.
The third largest area of investment in 2006 was in the expansion of existing portfolio companies, with over 500 add-ons and mergers observed during the year. Whilst this area accounted for nearly 20% of the total number of investments, the value (just over $32bn) constituted just 5% of the total value of deals, as these types of deals are often of undisclosed value. Similarly, the smaller average investment size in the other classes of buyout deal (including growth capital, PIPE, recapitalisation and restructuring deals) meant that although they accounted for a combined 18% of the total number of deals, their value was equal to just 4% of the total.
Several contrasts can be drawn between the investment composition in 2006 and 2011 to date. The most notable difference is the dramatic reduction in public to private investment. This area has seen only 20% of the total value of investment in 2011, compared to 47% in 2006. Although each of the other types of investment has seen an increase in value as a proportion of total value, add-ons and mergers have witnessed the most significant increase. Nearly $23bn of the $166bn of deals recorded so far this year has been focused on this area, which translates into 14% of the total value, significantly higher than the 5% seen in 2006. This is unsurprising as PE firms have focused on their current portfolio post-financial crisis, with the number of add-ons and mergers as a proportion of the total also increasing from 19% to 35%. Another area in which the value of investment has risen is buyouts, which now account for 55% of the total value of deals compared to 44% in 2006; however, it is interesting to note that buyouts as a proportion of the total number of deals has fallen by a third.