PE Industry Adapts to the Current Trends Successfully

The uncertainty brought about by the pandemic is severe. It took a toll on very investment arena forcing the companies to revisit their strategies, accelerate digital transformation, and transform their work culture.
The private equity industry diverged in terms of their focus area, became laser-focused in stabilizing their existing portfolios, and planned new selective investments. As a result, they bounced back to normal situation very soon. This infographic by USPEC compiles on how the PE industry succeeded the challenging pandemic situation and throws light on the industry trends for this year 2021.
Sasha Jensen, CEO of Jensen Partners says that the PE industry will continue to grow. The economic crisis and record levels of dry powder has positioned the firms to earn the greater share of the global economy, including the areas hit by COVID-19. She further states that PE firms will transform the social and environmental systems by integrating ESG and impacting the investment decisions.
Read on further to know the details and PE outlook for the year 2021.
The year 2020 started out normal and was ardent till Q1, but had a freefall in Q2. The pandemic triggered a swift crash yet, PE firms had a great economic recovery. The IT deals reached USD 20 billion in 2020, an increase of 72.4 percent as compared to 11.6 billion in 2019. By mid-November, the investors announced about 4,100 deals which was an up by five percent from the record in 2019.
The key strategies the industry followed include:

  • A shift in leveraged buyout business by opting for buying minority stakes
  • An investment of more money in public companies
  • A quick adoption to serial acquisitions accounting for 72.5% of all buyouts
  • A transition from venture capital funding to traditional buyout phase
  • NYSE and NASDAQ have waived their ’20 percent rules’ temporarily

The private equity growth is highly influenced and defined by these changes and has a positive outlook for the year 2021. A few of the forecasts and its indicators are as follows:

  1. The PE fundraising may surpass USD 330 billion as institutional investors increase allocations to alternatives and General partners are offering additional strategies.
  2. Due to dry powder surplus, low interests, and demand for high-yield debt, 20 percent of buyouts may be priced above 20x EBTIDA.
  3. Moreover, the PE industry is becoming comfortable with the Special-purpose Acquisition Company [SPAC] resulting in PE-backed companies entering US public markets.
  4. We can find more Limited partners owing to strip sale, securitization, and portfolio IPOs.
  5. The pricing in the GP stakes will remain competitive.
  6. The fundraising will become strong in the US and the carveout deal value might hit the highest level on record.

To summarize, in 2021, the largest PE firms and PE investors might move beyond adaptation. PE investors would look for potential tech investments in emerging markets. Studies even predict that the fundraising in the US will exceed USD 316.9 bn. As the industry is prepared to meet the new challenges, embrace the emerging trends, and make the most of the opportunities in favor of them, the year 2021 will be a success.
how the PE industry succeeded the challenging pandemic situation
Infographic Source:

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