The Big Four accountancy firms' wealth advisory arms have observed a marked increase in private equity-backed companies selling off their investments, a trend that has accelerated over the past year. According to data from PitchBook, the volume of such divestitures rose by 20% in 2023 compared with the previous year, as firms seek to return capital to investors amid a challenging exit environment.
Rise in Divestitures
Wealth advisers at Deloitte, PwC, EY, and KPMG note that the surge is driven by a combination of factors, including pressure from limited partners to realize returns and a more favorable pricing environment for sellers. "We're seeing a significant uptick in PE firms offloading assets, both to strategic buyers and through secondary sales," said a partner at one of the Big Four firms, who spoke on condition of anonymity.
The trend is particularly pronounced in sectors such as technology, healthcare, and consumer goods, where valuations have remained resilient. For instance, a recent deal saw a PE-backed software company sold for $1.2 billion, a figure that would have been unattainable a year earlier.
Market Dynamics
Industry analysts attribute the shift to a rebound in debt markets, which has made it easier for buyers to finance acquisitions. Additionally, the gap between buyer and seller expectations has narrowed, facilitating transactions. "The bid-ask spread has compressed, allowing deals to get done," explained a managing director at a mid-market investment bank.
However, not all firms are rushing to sell. Some are holding onto assets, betting on further valuation growth. "There's a bifurcation in the market: some are cashing out, while others are doubling down," noted a senior adviser at EY.
Implications for Investors
For wealth advisers, the trend presents both opportunities and challenges. Clients with exposure to private equity are seeing increased distributions, which can be reinvested. But advisers must also navigate the tax implications of realized gains. "It's a double-edged sword," said a tax specialist at KPMG. "We're advising clients on how to manage the influx of capital efficiently."
Looking ahead, advisers expect the pace of divestitures to continue, albeit with some moderation. "The pipeline remains strong, but we anticipate a more measured approach in the second half of the year," said a partner at Deloitte. The net effect is a more dynamic private equity landscape, with implications for deal-making and portfolio management across the industry.
