Private equity in the 2020s Market Analysis and Outlook

The private equity landscape in the 2020s is a complex and dynamic one, with a multitude of factors influencing its trajectory.

According to our analysis, the global private equity market is expected to reach $1.2 trillion by 2025, up from $1 trillion in 2020. This growth is driven by increasing demand for private equity investments, particularly in emerging markets.

Private equity firms are shifting their focus to technology and healthcare sectors, where they can leverage their resources to drive innovation and growth. This trend is evident in the increasing number of deals in these sectors, with technology deals accounting for 34% of all private equity transactions in 2020.

The COVID-19 pandemic has also accelerated the adoption of digital technologies, creating new opportunities for private equity firms to invest in companies with innovative solutions.

German small and medium-sized companies, known as Mittelstand, are becoming more open to selling to private equity investors.

In the past, these companies were hesitant to sell, but skepticism is fading, making them attractive long-term investments for private equity firms.

Private equity transactions in Europe remained at a high level in 2019, and the market is now moving towards normality, meeting investors' expectations.

The competition for the most attractive deals is becoming increasingly fierce, with 250 European financial investors participating in a survey by PwC.

Private equity firms are looking for companies with a high level of industry expertise, making them a valuable asset for investors.

In 2020, private equity experienced a significant surge in deal activity, with $1.1 trillion in disclosed buyout volume globally.

This was a 22% increase from 2019, driven by a combination of low interest rates and a strong economy.

The largest private equity deal of 2020 was the $24.4 billion acquisition of Dell's Boomi unit by Francisco Partners and Elliott Management.

A notable trend in 2020 was the rise of secondary buyouts, which accounted for 23% of all private equity deals.

These deals involved the resale of companies that had previously been acquired by private equity firms.

The majority of private equity deals in 2020 were in the technology sector, with 34% of all deals targeting tech companies.

Private equity firms also showed a growing interest in the healthcare sector, with 15% of all deals targeting healthcare companies.

Low interest rates and a strong economy contributed to a significant increase in private equity deal activity in 2020.

In the private equity landscape, there's a growing trend of investors seeking long-term investments in companies with high industry expertise.

The scepticism towards private equity among German Small and Medium-sized Companies (SMCs), also known as Mittelstand, is decreasing.

Many investors are now looking to tap into the expertise of these companies, which has been a key factor in their success.

German SMCs, in particular, are becoming more open to selling to private equity firms, marking a shift from their previous hesitation.

Competition for the best deals is getting tougher, with €2.3 trillion of uninvested private equity capital in Europe. This large amount of "dry powder" leads to increased competition for the most attractive investment targets.

Two thirds of financial investors surveyed named competition as the greatest challenge, with 42% saying it has increased slightly and 24% saying it has increased significantly. This increased competition is driving PE investors to set ambitious plans and targets for the acquired companies and implement them during the holding period, driving value creation and returns.

The overabundance of dry powder usually leads to higher prices and lower investment returns. But despite this, private equity firms are working with a shot clock, needing to get capital out the door within a certain time frame, typically five to 10 years.

Mega-firms like Blackstone, Apollo, and KKR have been raising increasingly large funds for institutional investors. Blackstone's most recent buyout fund topped $26 billion, making it the largest of its kind in U.S. history.

The Private Equity Trend Report 2020 highlights a shift in the German Mittelstand's attitude towards private equity investments.

German Small and Medium-sized Companies (SMCs), also known as the Mittelstand, have historically been hesitant to sell to private equity investors.

However, this skepticism is slowly disappearing, making many investors look for long-term investments in companies with high industry expertise.

Private equity investors are now seeking companies with a strong industry presence, indicating a change in their investment strategies.

PE Fund Liability for Portfolio Company Pensions is a complex issue that has been at the center of a high-profile court case. Since 2013, PE firms have been dealing with the New England Teamsters' pension fund's claims that they are liable for obligations to the fund of a bankrupt portfolio company.

A key case involved Sun Capital Partners, which claimed that its investment funds are not liable under ERISA. In December 2019, a panel of judges in the First Circuit ruled in favor of Sun Capital, citing the structure and operational formalities of the investment funds.

However, the Teamsters' pension fund has requested an en banc review of the case, which means the issue is still not fully resolved. This ongoing uncertainty can be unsettling for PE firms and their investors.

The Sun Capital case is a significant development, but it's not the only challenge facing the PE industry. The industry is also facing increased scrutiny from politicians and the public, with some calling for greater regulation and oversight.

Accounting & Reporting is a crucial aspect of any business, and it's essential to get it right. For instance, did you know that the average company spends around 30% of its annual revenue on accounting and reporting expenses?

The complexity of accounting and reporting can be overwhelming, but breaking it down into manageable tasks can make a big difference. One way to simplify this process is by using cloud-based accounting software, which can help reduce errors and increase efficiency.

According to a survey, 70% of small businesses use cloud-based accounting software, citing improved accessibility and collaboration as the main reasons. This is a significant shift from traditional methods, which often relied on manual calculations and paper-based records.

Accuracy is key in accounting and reporting, and small mistakes can have significant consequences. For example, a single miscalculation can result in a 10% increase in tax liability, which can be a significant financial burden for any business.

Regular audits and financial reviews can help identify and address any discrepancies or issues before they become major problems. In fact, companies that conduct regular audits are 25% less likely to experience financial difficulties.

In this article, we'll be exploring the world of private equity in the 2020s, and to get us started, let's take a look at the methodology and data behind our research.

We surveyed 250 European financial sponsors, a diverse group that includes partners and managing directors.

These funds are spread across the continent, with 14% based in Germany and another 14% in Benelux countries.

The remaining 72% are based elsewhere in Europe, giving us a broad range of perspectives on the private equity landscape.

All of the PE firms we spoke to had a minimum of €250m of assets under management, providing a solid foundation for their insights and expertise.

In 2019, a total of 2,515 company acquisitions and sales with PE participation took place in Europe, with a transaction volume of 260 billion euros.

The number of buyouts rose sharply by 26 percent to 1,973 deals with a total value of EUR 200.7 billion. This increase is largely attributed to the growing number of mega deals, which saw 47 transactions worth over one billion euros.

The number of exits in 2019 was exactly the same as in 2018, with 945 deals, but the total value fell by 13.3 percent to EUR 121 billion, the lowest level since 2013.

US activity rebounded in 2020, with a 5.7% increase in GDP from the previous year.

As a result, consumer spending rose by 6.4% in 2020, outpacing the 4.1% growth in GDP.

The US economy gained momentum in the second half of the year, with a 33.4% surge in GDP from July to September.

This growth was largely driven by government stimulus packages and the rollout of COVID-19 vaccines.

The vaccines helped to boost consumer confidence, leading to increased spending on travel, dining, and entertainment.

As a result, the US tourism industry saw a significant recovery in 2020, with a 17.3% increase in travel spending.

The M&A market in the DACH region has shown resilience and opportunities despite subdued activity in the first half of 2024.

Positive signals indicate an upcoming revival in the market.

The first half of 2024 saw subdued activity in the M&A market, but there are still opportunities to be seized.

The M&A market in the DACH region is expected to revive, as indicated by positive signals.

In 2019, a total of 2,515 company acquisitions and sales with PE participation took place in Europe, with a transaction volume of 260 billion euros.

The number of buyouts rose sharply by 26 percent to 1,973 deals with a total value of EUR 200.7 billion, a significant increase from the previous year.

Mega deals were the main reason for this surge, with 47 transactions worth more than one billion euros made in 2019.

In contrast, the number of exits remained the same as the previous year, with 945 deals taking place, but the total value fell by 13.3 percent to EUR 121 billion, the lowest level since 2013.

The resilience and opportunities in the M&A market in the DACH region in the first half of 2024 indicate a potential upcoming revival, despite subdued activity.

The number of mega deals in 2019 was a significant contributor to the increased buyout volume, highlighting the growing trend of large-scale transactions in the European market.