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Jefferies sees “green shoots” in exit activity and buyout valuations

Jefferies is forecasting moderately positive buyout marks in private equity for Q2, and believes there are “green shoots” in exit activity.

Jefferies’ latest Listed Private Equity Q2 Marks Outlook expects “moderately positive buyout marks” for Q2, in keeping with the performance in recent quarters.

Noting benchmark indices used to assess the direction of private equity buyout valuations, Jefferies’ commentary said the Russell 2000 Value Index was up 2.5%, while the Stoxx Europe 600 Index was up 1.5%.

Meanwhile, for venture/growth equity exposure, the tech-heavy Nasdaq 100 Index was up 15.4%, while the Refinitiv Venture Capital Index was up 18.6%.

Finally, industry bellwether Blackstone has reported its largely buyout-focused private equity portfolio increased in value by 3.5%.

All of which points to Q2 being “another moderately positive quarter for buyout marks”, in keeping with the prior quarter and last year’s Q4.

“Regarding venture/growth investments, while the marks are typically more idiosyncratic, it does appear that the strong performance from growth-orientated equity indices has translated into funding round valuations.”

Citing Pitchbook data, Jefferies’ commentary noted that in Q2 the exit value of U.S. private equity deals saw quarter-on-quarter growth for the first time in 12 months, albeit admittedly assisted by a few mega-sized transactions.

“Finally, as a source of exits, IPO activity is likely to lag the recovery in acquisitions by strategics and private equity sponsors, but there are signs the IPO window is now ajar given some successful offerings in both the U.S. and Europe of late,” Jefferies added.

“The corollary is that a resurgence in exit activity would support NAVs by capturing structural valuation uplifts. It would also provide a much-needed boon to share price ratings, by helping to validate marks, and alleviating any lingering balance sheet concerns while the funds still have negative portfolio net cash flows.”

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