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Investors Reaping Rewards Of Private Equity Exits In Early 2011

So far this quarter, there have already been 201 PE-backed exits valued at $85 billion. The roughly two-month total already tops the record set in the fourth quarter of 2010, when 325 exits with a total value of $81.3 billion were announced.

Here is another sign that the private equity market is on the road to recovery.

So far this quarter, there have already been 201 PE-backed exits valued at $85 billion, according to London-based Preqin. The roughly two-month total already tops the record set in the fourth quarter of 2010, when 325 exits with a total value of $81.3 billion were announced.

What’s more, the second quarter volume is already 10 percent higher than the total exit value announced in the first quarter of this year.

Preqin points out that five of the largest exits announced so far in the second quarter have resulted from deals made during the buyout boom from 2005 to 2007. Another three deals were made within the last two years.

This ramp up in exits is very encouraging for the PE market since it means a large sum of cash is being returned to investors. If they are happy with their PE investments and they want to maintain their allocation to private equity, these investors are then likely to plow these proceeds back into new funds being raised, which in turn would help boost the number of fresh private deals, which is recovering but not as swiftly as it potentially could given the near record amount of dry powder looking for an acquisition target.

According to a separate Preqin report, there were just 623 PE-backed deals worth $49.9 billion announced during the first quarter, down 8 percent in number and 26 percent in aggregate value from the fourth quarter of 2010.

So far, the resurgence in exits seems to be taking place outside the U.S. According to Preqin the total value of European exits was $57.9 billion or nearly 70 percent of the total so far this quarter. It was also double the total in the first quarter and nearly five times the $12.7 billion in exits seen during the first quarter of 2010.

In North American, total value of exits amounted to $23.7 billion and Preqin stressed they are on track to match levels of previous, noting there were over $43 billion in exits in both the fourth quarter of 2010 and first quarter of this year.

Asia and rest of the world account for a small portion, coming in at just $3.4 billion so far this year, putting them on track to more or less match the $5.2 billion in exits in the first quarter. Preqin also points out that Asia and Rest of the World exits have been shrinking since they set a record $14.1 billion in the fourth quarter of 2010.

However, as the Wall Street Journal points out Tuesday morning, private equity firms have been very busy of late exiting deals in Hong Kong and other Asian markets.

For example, in April Kohlberg Kravis Roberts unloaded some of its stake in Chinese financial leasing company Far East Horizon Ltd., which raised roughly $760 million in an initial public offering in Hong Kong. Another KKR holding, Tianrui Group Cement, is planning raise as much as $500 million in an IPO, according to the paper.

The Journal points out that several other PE firms unloaded some or all of their stakes in recent Hong Kong IPOs. For example, China NT Pharma Group, which in 2008 received an investment from TPG Capital, in April completed a $209 million IPO, while Yuanda China Holdings Ltd., which counts Standard Chartered Private Equity as an investor, raised $330 million in an IPO in May.

Last week Shanghai based Home Inns & Hotels Management, which is traded on Nasdaq, said it agreed to acquire Motel 168 International Holdings for $470. Motel 168 is owned, in part, by Morgan Stanley.

Meanwhile buyouts are staging something of a comeback. Preqin reports there have been 380 buyouts valued at $43.3 billion so far this quarter. This suggests total deal flow is approaching the post-Lehman high of $67.3 billion announced in the fourth quarter of 2010.

But, alas, this is still well below the all-time high of $369.5 billion from the second quarter 2007.

If history is any indicator — and on Wall Street history means a lot — this record will be topped some day. We’ll just need a healthy mixture of easy credit and mindless euphoria, the favored elixirs of deal makers.

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