Private equity set a remarkable new standard for itself in 2021, with buyout deal value reaching an all-time high of USD1.1 trillion, doubling 2020’s total of USD577 billion and shattering the previous record of USD804 billion set in 2006 during the exuberant run-up to the global financial crisis.
Private equity set a remarkable new standard for itself in 2021, with buyout deal value reaching an all-time high of USD1.1 trillion, doubling 2020’s total of USD577 billion and shattering the previous record of USD804 billion set in 2006 during the exuberant run-up to the global financial crisis.
That’s according to Bain & Company’s 13th annual Global Private Equity Report, which highlights that deal size, not deal count, was behind this increase.
The number of deals greater than USD1 billion roughly doubled in 2021, with average deal size reaching USD1.1 billion, increasing 57 per cent to pierce through the USD1 billion mark for the first time.
One reason for the sharp increase in deal value last year is the sheer volume of capital in the market. After 10 years of steady growth, dry powder set yet another record in 2021, rising to USD3.4 trillion globally, with approximately USD1 trillion of that sitting in buyout funds.
The opportunity to put large amounts of capital to work produced a sudden and sharp increase in public-to-private (P2P) deals, especially in North America and the Asia-Pacific region. These take-private transactions soaked up USD469 billion in capital globally, a 57 per cent one-year increase, and were largely responsible for 2021’s record-setting value total. The last time the market produced such an increase in P2P transactions was in the run-up to the global financial crisis in 2006-07. The key differentiator of today’s P2P deals is their smaller size. Today’s P2P deals are often done by one to two buyers with deep expertise in the sector, versus the consortia of buyers required for the large deals we saw in 2006-07.
By deploying large amounts of capital quickly over the last three years, buyout firms have seen their share of M&A activity globally rise to 19 per cent, its highest level since 2006. The push, however, has come at a cost: average buyout multiples in 2021 rose to 12.3x in North America and 11.9x in Europe.
The increased level of pricing across the industry may also reflect the bet that more investors are making toward specialization, especially on technology-fueled growth. One in three buyouts now involves a technology company. Continued growth in sectors such as fintech, healthcare and business services—where outperformance is increasingly a function of technology expertise—means technology is now a key investment thesis in well over half of all deal activity.
In addition to investments, exits also roared to new records, with each and every exit channel about as attractive as it could be in 2021. Overall, buyout funds unloaded USD957 billion in assets globally, more than doubling a strong 2020 total and beating the five-year average by 131 per cent. Special-purpose acquisition company (SPAC) deals were particularly notable, increasing 325 per cent from the year before and reaching USD158 billion.
Private equity continued to deliver for investors in 2021. Buyout funds, on average, have generated stronger pooled net IRR than public markets, offering broader exposure, less volatility and returns that are better over time. A full 95 per cent of LPs surveyed by Preqin in Q4 2021 said that the performance of their PE portfolio met or exceeded their expectations in the past year, although some predict a bit of cooling in the coming year.
Fundraising rounded out the list of last year’s record-shattering metrics. Global funds raised across the full private capital spectrum hit USD1.2 trillion, the highest level ever reached. Buyout funds raised USD387 billion in 2021, their second-best year ever. Investor enthusiasm for private equity shows no signs of waning. Nearly 90 per cent of LPs surveyed by Preqin in 2021 said they expect to increase or maintain their PE allocations this year, and 95 per cent said they will do so over the longer term.
This year’s Global Private Equity Report explores key themes to watch in 2022, including pressures on Environment, Social and Governance (ESG) metrics, a shift toward dealmaking in Asia and the growing challenge of inflation.
