Private Equity Portfolio Company Holding Periods – Updated
I periodically update the private equity portfolio company holding periods to track this trend over time. I thought this would be a good time to append another data point to the graph, just before this metric is impacted by the COVID-19 economy.
2020 YTD Median Holding Period = 4.8 years
Min = 3.0 years, (early 2000’s) and 3.5 years (2008)
Max = 5.6 years, (2014)
A Few Comments on the Historical Trend
The last recession (2008 – 2010) had a noticeable impact on the holding periods for private equity portfolio companies. Specifically, investments made just prior to the recession, at peak valuations, were held longer.
The chart below shows the bump in holding periods, peaking at 5.6 years in 2014. Five and a half years before 2014 represents acquisitions made just before the recession hit, likely at peak valuations. These ill-timed acquisitions required longer holding periods to realize respectable returns. Consequently, median holding periods elongated.
From 2014 – 2018, median holding periods for portfolio company exits showed a slight-but-steady downward trend, then leveled off just below 5 years.
Given the extreme economic impact due to the coronavirus, the median holding period should increase as private equity firms delay exits, just like last time. Longer holding periods from private equity firms results in fewer M&A deals on the sell-side from PE shops. This, of course, might be offset with increased investment on the buy-side, as opportunistic PE firms with available funds recapitalize / restructure operating companies that otherwise might not survive the current economic climate.
For those PE firms with dry powder, this could represent an opportunistic season to acquire assets at deep discounts while also preserving the employment and legacy of those brands going forward.