Private Equity market: 2021 - the storm before the calm?

Looking back on 2020

The first quarter of 2020 was relatively quiet after a very active year of M&A in 2019. Covid-19 caused a dramatic fall in deal activity in the short-term, with most Private Equity firms adopting a “portfolio first” approach, focusing on preserving liquidity and providing operational and financial support to their portfolio companies. 

Despite this uncertainty, according to the our “Covid-19 and the world of Private Equity” global survey conducted in May, 74% of investors remained open for new business. This was evidenced by the significant re-bound in M&A activity in the second half of the year, with European deal volume up 32.9% in Q3 compared to Q2 (Pitchbook European PE breakdown – Q3 2020).

The mid-market saw a considerable increase in activity towards the end of the year, as business owners looked to capitalise on a highly liquid funding market and to crystallise transactions prior to any potential adverse changes to Capital Gains Tax rates (see our article on Capital Gains Tax for more information).

Looking forward to the year ahead

Private Equity firms have entered 2021 in an interesting position. Record levels of dry powder, combined with the pressure to deploy capital, have continued to push up valuations for high-quality assets, particularly those which have demonstrated a resilience to the impact of Covid-19.

The significant amount of liquidity in the market is likely to drive PE deal activity in 2021, particularly as Government support measures are tapered back and access to debt markets is likely to be more challenging.

Expected changes to Capital Tax rates are also likely to drive deal volumes in Q1 as sellers look to maximise post-tax deal values, which undoubtedly will present opportunities for further deployment of Private Equity capital in the short-term.

We will be releasing a follow up to our “Covid-19 and the world of Private Equity survey” shortly - an update to the report released in May 2020. This captures the current sentiment of Private Equity Houses and their outlook for the months ahead. There are several interesting themes arising from this report, including anticipation of more distressed opportunities in 2021, alongside a generally more optimistic viewpoint on the market for investment when compared to May 2020.

Despite the most recent lockdown in the UK, there continues to be an overriding positive sentiment from Private Equity Houses. This sentiment, combined with the impressive resilience of certain industries, is likely to pave the way for an interesting year ahead.

Our firm and Private Equity

Our Deal Advisory is an award-winning team with significant expertise in advising on transactions involving institutional funding, particularly Private Equity. The team can provide a range of services to support on Private Equity transactions, including:

  • Buy-side advisory on platform investments, providing niche sector-led and technical services to Private Equity clients;
  • Management advisory to re-investing management teams, delivering bespoke advice on term sheets and returns analysis;
  • Outsourced M&A support services for portfolio companies completing bolt-ons, with services including financial analysis, process management and financial modelling; and
  • Debt advisory to support equity-led investments, taking control of the debt process to deliver a funding package to support the transaction.

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