Private Equity Portfolio Company Holding Periods – Updated
I periodically update the private equity portfolio company holding periods data study to track this trend over time.
The longest median holding period for private equity owned portfolio companies was 5.6 years, back in 2014. This is intuitive because 5 or 6 years prior to 2014 represented those portfolio companies acquired at the peak of the market, just before the last recession. Consequently, the holding periods were extended, allowing more time to recoup from ill-timed acquisitions.
Since 2014, there has been a slight-but-steady downward trend in portfolio company holding durations – until now. The last data point on the right (2019 YTD, through August), represents the first trend reversal for this metric since 2014. Based on the last 5 years, I was expecting to report a median holding period of 4.6 years, but instead, the data shows:
2019 YTD Median Holding Period = 4.8 years
Max = 5.6 years, (2014)
Min = 3.0 years, (early 2000’s) and 3.5 years (2008)
Quite a few people have asked me if this trend line might be used as a leading indicator. That is, could this most recent trend reversal point to some insight about the direction of the overall economy?
If investment firms, collectively, are not getting the desired exit valuations relative to expectations, do they elect to hold portfolio investments a little longer? Flipping this logic, if PE firms begin to hold their investments longer, does this imply a softening in the market (or at least the M&A market)?
The previous two trend reversals for holding periods were in 2003 and 2009. One might argue that inflection points in 2003 and 2009 could be a slightly lagging indicator. In other words, is the economy driving the median holding period or is a change in holding period indicative of a directional change in the market?
I’m curious how others view this. Leave a comment below to share your thoughts.