Private equity firms are ready to pounce in 2020, armed with a record level of cash.
Firms led by Blackstone Group and Carlyle Group have amassed almost $1.5 trillion in unspent capital, the highest year-end total on record, according to data compiled by Preqin. While last year saw roughly $450 billion worth of private equity deals, Mergers and acquisitions this year could be on a scale not seen since the financial crisis.
"We're entering the year with people feeling much better about the economic and geopolitical outlook than was the case a year ago," said Jason Thomas, global head of research at private equity giant Carlyle.
Here's a look at industry figures for 2019, and what they could mean for the next 12 months.
Low interest rates, the rise of index-tracking funds and years of lackluster hedge fund performance have pushed investors to private equity in search of higher returns. Many firms — once known as leverage buyout shops — have opted to accumulate those assets as valuations soar and competition for deals grows.
One reason why firms can keep so much cash on hand ready for the right moment is because their investment options are expanding, according to Kewsong Lee, co-chief executive officer at Carlyle. Asset classes such as private credit and regions including Japan are opening up to private capital flows, he said at a conference in December.
"It's not only private equity that keeps growing, but new asset classes are emerging within private equity," Mr. Lee said.
While deal activity was down slightly on 2018, last year's figures were still strong as firms continued to eye larger targets.
In what could be the biggest-ever leveraged buyout, KKR & Co. approached drugstore giant Walgreens Boots Alliance Inc. in November about taking the company private. One of the largest deals last year was the roughly $14 billion buyout of fiber network company Zayo Group Holdings Inc. by Stockholm-based private equity firm EQT and Digital Colony Partners.
The cash on hand could mean even more dealmaking in 2020, said Dave Tayeh, head of private equity in North America at alternative asset manager Investcorp.
"There are many tailwinds expected to drive healthy deal flow — from increased certainty around Brexit to continued low rates and ongoing technology disruption across sectors," Mr. Tayeh said by email. "But global trade tensions and high valuations will continue to have an impact on M&A."