Buyout activity fell 14 percent compared to the first half of 2018, with values totaling US$111.1 billion during the first six months of 2019, while volume fell 19 percent to 608 deals. On the other hand, exit activity fared far better, rising 19 percent in deal value to US$148 billion, though volume fell 15 percent to 505 deals.

Whether the first-half slowdown in private equity buyouts represents the start of a sustained decline in activity or a mere pause for thought remains to be seen. Buyout activity remains high when assessed in a historical context. But the industry may be taking a wait-and-see approach given the possibility of a slowdown in the US economy. The question is how long they can wait—with US$2.4 trillion in dry powder globally, firms are under significant pressure to get deals done.

The availability of capital has pushed competition and valuations to exceptional heights, with multiples averaging about 11 times' EBITDA in the US and Europe over the past 12 months, above the level seen prior to the financial crisis. Thus, some firms are biding their time, particularly in industries where strategic buyers—able to issue stock to finance high purchase prices and to justify elevated valuations with synergy estimates—are particularly active.

Against this backdrop, activity has skewed toward larger deals in the first half of the year. In the buyout category, the two largest deals of the year so far, Zayo Group’s US$14.1 billion acquisition by Digital Colony Partners and EQT, and Ultimate Software's US$11.8 billion acquisition by a Hellman & Friedman and Blackstone consortium, together accounted for nearly a quarter of total deal value. In the exit category, KKR's sale of payments infrastructure provider First Data to Fiserv for US$38.4 billion accounted for more than a quarter of deal value.

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For some firms, the answer has been to try new approaches. The fact that the two largest deals of the year so far were take-private transactions reflects the fact that, with multiples so high among private companies, valuations of publicly listed companies, even at a premium, look more affordable. Alternatively, a growing number of private equity firms are investigating cross-border transactions, seeking out investments in Europe, as well as other jurisdictions, where competition is not so fierce.

Higher multiples have also seen the return of club deals, with buyers pooling resources to access mega-transactions. Such arrangements bring their own challenges—most obviously over who will have strategic control of the business and exit timing—but these look less daunting in a highly valued marketplace. In addition, "new" club deals are also emerging, in which large-cap funds bring in one or two of their largest LPs to underwrite between 25 percent and 40 percent of the equity check. In terms of control, the LP will have minority rights but the large-cap fund will be in charge. 

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On the exit side, while sales were slower in the first half, heightened expectations of a recession should lead to an increase in activity, as funds seek to sell out of holdings vulnerable to a downturn. We are already beginning to see average holding periods come down in length to approximately four and a half years—and a corollary increase in “quick-flip” exits after fewer than three years.

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