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Private Equity

Unprecedented Private Equity Deal Activity in 2021 Shows Few Signs of Letting Up

It has been interesting to reflect on how private equity (PE) firms have continued to successfully navigate their way out of the pandemic over the past year, as discussed in more detail in our Global Private Equity Outlook 2022. We have seen the industry devising creative solutions to the challenges it has faced and, in the process, exceed previous records both on deal value and volume as well as for fundraising - as we enter 2022 the industry has never had more dry powder available to it.

The multijurisdictional study, which includes insights from a survey of 100 senior PE executives in Asia, Europe and the U.S, examines how this hot streak will fare in 2022, the headwinds managers may need to navigate, and the strategies which can be employed to succeed in the industry’s most active period ever.

We found that between the months of January and September 2021 alone, there had been $US1.17trn worth of deals recorded. A figure which eclipsed every prior full-year total reaching back as far as 2015, and the capital continues to pour in. PE and venture capital dry powder had already hit a record level of nearly US$2trn globally in 2020.

Possible bumps along the road

However, despite these achievements, the report also stresses that the PE industry should not become complacent and makes the important observation that the last deal record of US$821bn was set in 2007, just before the global financial crisis (GFC) put an end to the credit boom of that period.

In addition, the report also identifies potential headwinds which could emerge to upset the industry’s growth trajectory. For example, persistent inflationary trends, labour shortages and Covid-induced supply chain disruptions.

Yet, despite these possible setbacks, 41% of North American respondents surveyed by Mergermarket, on behalf of Dechert, expect market conditions for PE exits over the next 12 months to be very favourable.

ESG is key in 2022

ESG is a recurring investment theme highlighted in the report, with 29% of those surveyed singling out climate change as the most important aspect taken into consideration when contemplating investing, with sustainability coming in second on 14%. This trend is understandable given the level of attention around COP26 at the end of 2021 and can also be seen as reflective of the US market starting to catch up with Europe on ESG regulation over the past year.

A development which is echoed by 60% of North American respondents who expect a significant increase in Limited Partner scrutiny of ESG issues and reporting in deals over the next three years, surpassing EMEA where 49% of respondents expect the same.

Meanwhile, just 20% of respondents in APAC shared the same sentiment. However, due to the region’s sizable potential for significant climate and ecological impact, we expect to see greater levels of PE investment in renewable energy, high-quality natural capital, and corporations that use technology to reduce carbon emissions in 2022 and beyond.

Divergence starts to appear

As we shift focus to 2022, the report identifies a divergence appearing within the industry between sizable well-established players, including multi-strategy asset managers, and those smaller, mono-line or less well-established market participants, which is making it increasingly difficult for new entrants to establish themselves in the market.

Another trend is the revival of club deals in the US, birthplace of the PE megadeal, as a result of the sheer size of transactions. Of those surveyed, 53% of North American General Partners (GPs) are anticipating an increasing prevalence of club deals in the wake of the pandemic, compared to 37% in EMEA and 30% in APAC.

In addition, 45% of all respondents surveyed say they have increased their use of private credit financing in buyouts over the past three years, a visible leap from our previous annual global PE outlook report, when only 35% of respondents reported the same.

The rise of continuation funds

Another interesting growing phenomenon identified within the report is GPs selling assets to “continuation funds”, which are also managed by themselves, enabling investors to maintain exposure to specific assets. This is particularly evident in EMEA where 54% of respondents say they expect one of the pandemic’s aftereffects to be the trading of successful portfolio companies to successor funds, which typically occurs through a GP-led secondary transaction.

This is yet a further example of the PE sector developing innovative solutions to the challenges it faces and thereby attracting greater volumes of capital. What the report does make clear is that creative thinking and a diverse approach are paramount if PE firms, from Europe to the U.S. and Asia, are to remain ahead of the competition and overcome potential challenges in 2022.


Christopher Field is Partner and Co-Head of the private equity practice at Dechert


The views expressed in this article are those of the author and do not necessarily reflect the views of AlphaWeek or its publisher, The Sortino Group

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