By almost any measure, 2021 is setting up to be by far the best year in the industry’s history. Private equity’s supersizing has created ever larger funds doing ever larger deals. And given that the industry’s mountain of dry powder stood at a new record of $3.3trillion as of June 30 (around $1 trillion in buyout funds alone), there’s plenty of fuel left to drive new activity.
Globally, private equity generated $539 billion in deal value during the first six months of 2021. That’s on par with the full-year average since 2016 of $543 billion.
During the first half of 2020 deal size spiked by 48%, from $718 million to $1.1 billion.
The technology sector continued to dominate activity and that probably understates tech’s growing appeal to investors. Given that tech means growth and growth means higher multiples, the bias toward investing in these sectors will likely continue in the months and years ahead.
As of June 30, SPACs had spent only $49 billion to close merger deals, and another $48 billion had been committed to announced mergers. That means 419 SPACs holding $133 billion are still looking for companies to take public, presenting both challenges and opportunities for general partners (GPs).
The challenge is that some portion of that unspent capital will only add to the already fierce competition firms face when hunting through a limited supply of quality acquisition targets.
The upside is that SPAC mergers will continue to create a strong exit channel for GPs seeking a fast-track entry to the public markets.
Global buyout-backed exit value through June 30 soared to $488 billion, or 10% higher than the full-year total in 2020, partly on the back of $84 billion in SPAC mergers. Traditional IPOs also were on fire, accounting for $90 billion worth of exits. This surge in public exits was mostly a North American phenomenon.
We could expect the global exit value to reach $1 trillion by the end of 2021, doubling the previous peak of $521 billion in 2014.
The high returns generated by SPACS improved the appeal of private equity as an asset class. According to Preqin’s first-half Investor Outlook, approximately 90% of LPs say they plan to commit the same amount of capital or more to private equity over the next 12 months. And over the first half of 2021, they turned the spigot wide open.
Overall, fund-raising was up to $631 billion in the first half, where nine mega funds (more than $5 billion in assets) collected $120.4 billion (EQT, KKR, CD&R for instance), or more than half of all the buyout capital raised, 17% more than they targeted, on average.
Buyout, venture, and growth funds saw the biggest increases over 2020, while secondaries, distressed, and real estate funds fell off.
Bain & Company report: Private Equity’s Wild First-Half Ride
By Hugh MacArthur
