Insatiable investor demand has driven US PE-backed exit value to nearly 20-year highs, but it is unlikely this trend will hold up in 2022.

PE-backed IPOs broke annual records for both total count and value in just the first three quarters of 2021, a phenomenon driven by advantageous market conditions and technology, according to our latest Quantitative Perspectives Report.

There were 42 PE-backed US public listings in Q3 2021, contributing to the fifth consecutive quarter with increased listing totals. Total PE-backed IPOs, which amassed $90.9 billion, accounted for more than 42% of PE exit value in the third quarter. 

Tech dominated nearly all aspects of private equity in 2021. Driven in part by strong activity within the tech sector, PE deal activity is being completed at the fastest clip in at least 20 years. Tech is having a similar effect on PE-backed exits.

Of the largest 100 PE-backed IPOs through Q3 2021, 26 of those companies were in the tech sector and 29 had received a growth equity investment.

The average value of a company taken public by a PE firm reached record highs, with the median valuation hovering around $1 billion—a peak that will be difficult to sustain, according to Andrew Akers, a quantitative research analyst at PitchBook.

"High valuation multiples have been the biggest single contributor to the large exit sizes we saw in 2021. Given that valuation multiples are already lofty in public markets and interest rates are expected to rise, it is difficult to see the average PE-backed IPO exit size increasing in 2022," Akers said.  
 

Valuation premiums, which have been driven by stronger demand and competition to invest capital in public versus private equity, have also led GPs to favor IPO paths for companies over mergers and secondary buyouts.

"Companies exiting via IPO have historically received higher valuations than those exiting via acquisition, partly because they are more liquid. However, the valuation premiums of IPOs relative to acquisitions over the past few years have been nothing short of extraordinary," Akers said. 

For the same reason that Akers believes it's likely that average valuations for PE-backed IPOs will decline in 2022, he expects that valuation premiums will tighten, but remain elevated.

Featured image by Doug Armand/Getty Images

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