Some call it "private equity inflation."
It's a problem for the industry that occurs as the market rises over a long period of time. Such a move causes the valuations of acquisitions to go higher, which allows private equity firms to sell or take their portfolio companies public at steeper prices.
That, in turn, puts more money into the coffers of private equity, which means there is more competition when bidding for new assets — driving prices higher yet again.
During the first quarter, private equity firms paid a median enterprise value multiple of 10.8 times earnings before interest, taxes, depreciation and amortization, according to a report this week from database firm PitchBook. That's the highest level since at least the financial crisis, the report showed.
"PE firms are victims of their own success when it comes to pricing," the report said.
Compounding their challenges (or blessings) is that it's among the best environments for fundraising ever. North American funds secured their highest first-quarter fundraising total ever, raising $62 billion, according to recent data by Preqin, an alternative assets research firm.
Despite the large amount of cash on hand, private equity saw fewer deals during the first quarter. The PitchBook report showed that 745 transactions closed during the period, which was a 14 percent decline from the previous three months.