Private Equity Industry 2020: In review

While the world was dealing with COVID-19 outbreak and struggling with the economic implications of the outbreak, private equity industry made a few highly ambitious transactions and saw larger-than-expected investments. Reliance Jio and Reliance retail mopped up a slew of private equity transactions in 2020. According to an industry report, the total money that made inflow through this route amounted to $33.8 billion.

The total amount of private equity investments increased 108 percent in 2020. The number of deals went from 665 in 2019 to 791 in 2020, amounting to $33.8 billion even after facing economic slowdown. The total value of PE deals was $16.2 billion in 2019.

Most of the fund flew in the third quarter while lockdown was easing throughout the world. The total fund that flew in the period amounted to $24 billion, which eventually tapered off in Q4, reaching $4.57 billion, according to a global industry report. While the world was working from home, the advantage of being an internet-focused company cropped up, leading to maximum interest in the period. The total equity capital investment amounted to $7.4 billion in 2020 compared to $5.5 billion in 2019 during the same period.

Here’s a breakdown of the most prominent private equity investments, industry –wise.  

1. Communication -- $19.1 billion
2. Internet and software-related companies (3.6 billion)
3. Financial services ($1.4 billion)
4. Transportation (127 million)
5. Computer hardware ($18.49 million)
6. Transportation ($127 million)
7. Computer hardware ($18.49 million)

Communication, internet, and software –related services saw maximum investment, while financial services, transportation, and computer hardware saw a decline in investments. This was expected as work-from-home became the norm and adoption of technology became a necessity.  

Fund raising

According to Preqin, there were a record number of private equity funds in the market, but they were raising money at a slow pace. The report shows there were 237 private equity funds that closed in the third quarter, the lowest quarterly number since 2015. There were 3,968 private equity firms seeking capital, a record number of funds since 2015.  

Private equity fundraising changed significantly over the coronavirus pandemic. Majority of meetings were conducted virtually. Public market correction stalled fresh capital commitments, according to Preqin.  

In 2020, 39 percent of funds closed, over first three quarters. This is lower than previous five years. 45 percent of funds took more than 18 months to close, since 2015 per Preqin. Eurpoean private equity firm Nordic Capital closed its tenth fund, which the firm raised remotely amounting to $US 7.17 billion to deploy. Advent international closed $2 billion fundraise for its 7th Latin American Fund.

Even during the pandemic, fundraise sizes grew slightly quarter-over-quarter, reaching $536 million, Preqin noted. What this means is, institutional investors prefer larger and more established asset managers, according to Preqin. With social distancing making face-to-face meetings with new managers challenging, this could further allow investors to prioritize their older relationship instead of building new ones, Preqin points out.

In the third quarter of 2919, 59 percent of investors planned to commit nearly $50 million or less in the coming year. This amount declined to 50 percent in the third quarter of 2020. Investors are now looking to allocate between $100 million and $300 million. The number of investors who are interested in allocation of this size has increased by seven percentage points year-over-year.

As the fundraising landscape is changing, private equity firms have completed a record number of buyout deals. More than 5,500 private equity firms –led mergers and acquisitions have been announced until now. Further, fund-raising for growth capital declined 40 percent past year, reducing to $ 4.3 billion in 2020 from $7.25 billion in 2019.

The following were the top PE deals in 2020.

  • Jio Platforms (raised $15.68 billion)
  • Jio Digital Fibre ($ 1.106 billion)
  • Flipkart ($1.2 billion)
  • Zomato ($826.42 million)
  • Think & Learn ($ 823 million)
  • Oravel Stays (OYO)
  • Pep Technologies ($ 420 million)
  • SBI General Insurance ($420 million).

Final Word

COVID-19 has brought disruption to the private equity industry that was gearing up for challenging times. Consequently, funds now need to divide time appropriately in investing and maintaining their portfolio companies. The expectations were investment will die and fundraising would be higher. However, both have seen unexpected turn of events and still seem promising. While 2008 financial crisis was a lesson, COVID-19 is serving another lesson for the investors, PE firms, and other investment agencies need to keep themselves open to adaptation.


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