Hot Market in Brazil and the Exit Rate of Brazilian Private Equity Deals (Spectra Investments)

Summary

• The final analyzed sample contains 459 PE deals invested between 1994 and 2014, of which 180 were fully liquidated.p.2
• The overall average holding period for exited private equity investments in the sample is 9 semesters.p.2
• A hot market cycle increases the probability of exiting a private equity deal by 5 times compared to a cold market cycle.p.1
• The average holding period for deals exited in hot markets is 8.8 semesters, compared to 9.3 semesters in cold markets.p.3
• Assuming a cold market cycle, the probability that a deal's holding period will exceed 13 years (26 semesters) is 35%.p.5
• Large deals with a ticket size above $50 million tend to have longer holding periods than smaller deals.p.7

Key insights

1. A hot market cycle increases the probability of exiting a private equity deal by five times compared to a cold market cycle.p.1
2. Based on historical Brazilian stock market behavior, there is an 85% chance that a private equity deal will be exited before 13 years.p.1
3. The average holding period for exited investments in the sample is 9 semesters.p.2
4. Exits in hot markets averaged a holding period of 8.8 semesters compared to 9.3 semesters in cold markets.p.3
5. The probability of exiting a deal in the 5th semester is 10% in a hot market versus only 2% in a cold market.p.3
6. In a continuous hot market cycle, the probability that a deal remains in a portfolio for over 13 years drops to virtually 0%.p.5
7. Private equity funds with minority stakes tend to exit investments earlier than funds with control stakes.p.6
8. Deals with investment tickets higher than $50 million have a 79% chance of being held for at least 5 years, compared to 59% for smaller deals.p.7