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Private equity loss rates vary by sector

Using the loss rates analytics on DealEdge, we explore how the proportion of deals with MOICs less than 1.0X is related to pricing and sector in the entry years 2010-2014

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Private equity loss rates vary by sector
The likelihood of a deal returning a MOIC of less than 1.0X varies from year to year​

Notes: Proportion of deals with MOIC less than 1.0X by year of entry: buyout and growth deals; fully realized; all sizes; all regions; all sectors; year of entry 2010-2014; all figures calculated in USD

Source: DealEdge​
The downside risk in each entry year does not correlate strongly with the entry multiple

Notes: Proportion of deals with MOIC less than 1.0X vs median EV/EBITDA multiple at entry: buyout and growth deals; fully realized; all sizes; all regions; all sectors; year of entry 2010-2014; all figures calculated in USD​

Source: DealEdge
But there is wide variation between sectors, reflecting their different risk profiles​

Notes: Proportion of deals with MOIC less than 1.0X by sector: buyout and growth deals; fully realized; all sizes; all regions; all sectors; year of entry 2010-2014; all figures calculated in USD

Source: DealEdge
Even within specific sectors like Industrials, the risk profile varies between industry groups and industries

Notes: Green bars denote industry groups within Industrials, while grey bars denote industries within Construction. Proportion of Industrials deals with MOIC less than 1.0X by industry: buyout and growth deals; fully realized; all sizes; all regions; all sectors; year of entry 2010-2014; all figures calculated in USD

Source: DealEdge
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Developing a winning strategy doesn’t just involve assessing upside potential, but also downside risk. This is particularly true in the face of a market downturn.​

DealEdge tracks a range of private equity risk metrics across more than 570 industry subsectors, including:​

  • The proportion of deals with a MOIC of less than 1.0X​
  • Loss rates​
  • Recovery rates​
  • The proportion of deals that get written off​

To examine the downside risks in your area of focus, speak to us today.

 

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