In the wake of the COVID-19 pandemic, 2020 was a turbulent year for private equity markets. Despite these events, the sector has remained resilient.
Private equity trends for 2021
With a new U.S. presidency, vaccination efforts progressing, and the uncertainties of Brexit almost behind us, private equity investors are upbeat about the outlook.
Here are four private equity trends that we expect to see in 2021.
SPACs are expected to continue in popularity
A notable aspect of 2020 was the record-breaking rise of the special purpose acquisition company or SPAC, with private equity playing an important role.
According to PNC, in the first three quarters of 2020, there were 122 SPAC IPOs raising $47 billion in proceeds. That’s 50% of all IPO volume.
SPAC mergers also tracked well with 44 announced and completed mergers, totaling more than $87 billion in transaction volume. This activity continued into the end of the year with 140 SPACs outstanding.
Thanks to the stability of the current SPAC structure, these trends are expected to continue with the market increasing returns and raising new capital through 2021.
Fundraising is back
Market hesitancy and travel restrictions during the pandemic resulted in a 19% year-over-year drop in global private equity fundraising.
But capital supply remains healthy. It’s estimated that private equity funds of $1.7 trillion are ready to be put to work for investors this year. This will result in significant rivalry for assets, a range of deal structures, and high valuation multiples.
Technology continues to disrupt
A hallmark of 2020 was digital acceleration, and this will remain an important theme in 2021. As businesses shift to be more digitally savvy, we expect trends such as digital payments, logistics, and e-commerce to have a major financial impact. Furthermore, as consumers continue to prioritize safety and convenience, they will seek richer digital experiences.
This will have big impacts in the private investment sector as firms look to differentiate themselves with fintech and wealthtech solutions enabled by big data and artificial intelligence.
ESG will be prioritized
Environmental, social, and governance (ESG) factors are increasingly viewed as value drivers. As such, private equity firms are taking ESG into account when it comes to investing. This has resulted in a deeper examination of ESG policies and the performance of target companies and industries.
Impact funds have also been elevated. As 2021 unfolds, conversations and actions around ESG will continue to grow in importance for firms, employees, regulators, and limited partners.
Navigating the complexities of 2021
As midmarket private equity firms and their portfolio companies seek to capitalize on these trends and opportunities, compliance responsibilities can increase exponentially. These time-consuming duties can often sneak up on firms and sap energy and divert resources from the firm’s strategic goals.
That’s where CT can help. Our Deal Support Solutions ensure that the complex and sensitive work your firm deals with is manageable, accurate, and on time.