Private equity’s struggles may be harbinger of a bigger economic crash
Investors in private equity firms are in a bit of a bind. Maureen Farrell reported in The New York Times this month that they are sitting on 33,575 companies they have not been able to sell or list at prices their investors will accept. This is up from 32,451 at the end of last year and roughly double the 15,923 they held a decade ago. It is the third consecutive year the pile of unsellable…
Private equity firms are grappling with a significant issue – they have amassed an unprecedented number of unsellable companies, totaling 33,575 as of this year. This number has steadily risen over the past few years, more than doubling since 2012. The primary reason for these unsellable assets is the inability to find buyers willing to pay the premiums that private equity firms expect, particularly due to the lack of a robust IPO market.
Eric Juergens, a partner at Debevoise & Plimpton, noted that while firms would prefer an M&A exit if possible, an IPO has become a more viable option. However, this IPO market is not as robust as anticipated, with only a few high-profile deals making headlines, such as SpaceX's record-breaking IPO and David Ellison's pursuit of a $110 billion merger between Paramount and Warner Bros.
Despite this, many firms believe they have a window of opportunity to pursue a transformational exit via IPO before a potential new administration could limit such mergers.
The private equity industry's struggles are significant, with only 70 companies going public on U.S. exchanges since 2022, compared to 424 between 2017 and 2021. This decline in IPO activity, combined with the trailing performance of private equity returns compared to market indices like the S&P 500 and Nasdaq, has led to skepticism among potential buyers.
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