Insights
How Resilient is the Private Equity Market?
April 16, 2020
Globally, Q1 2020 saw private equity have a robust start to the year. According to data from Mergermarket’s Global and Regional M&A Report 1Q20, global buyout activity remained at the same value as Q1 2019. This was reflected in Europe, with the continent having a strong start to the year due to ‘high profile defensive consolidation and continued private equity investment’, which equated to a 30.2% increase in deal value over Q1 2019.
Of course, this was before the pandemic, with a fall in activity in March and with the primary market for leverage loans shut down, the private equity market is unlikely to reach the levels of the start of the year in the months to come.
But how resilient is the private equity market anticipated to be?
If we look back to the recession of 2008, it does not paint a promising picture, as trust was completely lost in private equity firms. In 2007, buyouts represented 27% of overall M&A value in the US and Europe, which then dropped to 14% in 2009, due to lack of trust. Similarly, in 2019, over 25% of global deals involved a private equity firm, which does no bode well for buyouts in 2021. However, the current crisis is very different in nature to 2008 and buyout activity should remain resilient due to the record amounts of dry powder financial institutions have at their disposal.
European private equity demonstrates this with private equity activity as late as mid-March, with KKR announcing a 5bn USD takeover of recycling firm Viridor.
During the current crisis, exits may be muted – but that does not mean they will grind to a complete stop. For opportunistic buyers, there may still be targets in the coming months, particularly those in sectors immune to the current crisis, such as technology, business services and software. Companies thriving in the crisis – such as those in hygiene, home fitness, and home entertainment should also see a continued interest.
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