Private equity is optimistic and looking for opportunities in 2021
- More than 90% of respondents want to invest in new businesses
- The decline in revenue should be less severe than previously thought
- The majority of respondents expect a "U-shaped" recovery, are comfortable concluding deals remotely and are confident in the reactions of governments
Mazars, the international audit, tax and consulting firm, has launched the study "Covid-19 and the world of Private Equity: optimism in an uncertain environment", which measures investor trends in the institutional financing market.
The study concludes that the investor market is generally optimistic and focused on new opportunities, and comfortable with concluding deals remotely. Respondents expect revenues to decline less severely over the next 12 months, with a U-shaped recovery and shorter delays in their exit strategies than previously anticipated.
Conducted in December 2020, the respondents are part of the Private Equity and Private Debt community, mainly located in Europe, Asia, North America and South America. The survey follows a report carried out by Mazars in June 2020 on the same topic.
Stéphane Pithois, Global Head of M&A at Mazars, said: "The second edition of our study confirms and reinforces the sense of optimism for which the private equity community is known. In an uncertain environment, investors have shown themselves to be resilient and seek new opportunities immediately, while settling into remote working conditions. If the political environment remains stable and capital continues to be made available, then we can expect private equity to continue actively looking for investment opportunities."
More than nine out of ten are looking for investment opportunities
Some 91% of respondents say they are "very open for business" and looking for opportunities to invest in new businesses and platforms at scale with acquisitions bolt-on. This compared to 74% in June.
Funds looking for new opportunities, less focused on loss management
Asked what best describes the fund's strategy for the next 12 months, 39% of respondents say "focus on originating new opportunities". This is nineteen points higher than in June. As for the number of funds that say they are focused on managing the loss in existing portfolios, it stands at just 101 Q3 in December 2020, compared to 241 Q3 in June 2020.
Revenues falling, but to a lesser extent
Despite expectations that revenues will fall over the next 12 months, respondents consider the decline to be less severe than previously reported. Some 30% of respondents expect a drop in revenue of 11%-25%, compared to 50% of respondents in the June 2020 survey. In addition, 40% of respondents say they expect a reduction in revenue of only 0%-10%, compared to 17% of respondents in the first survey.
Overall, respondents are much more optimistic about the market than they were in June: only 41,000,000 respondents report a level of optimism of three or less according to the survey criteria, compared to 291,000,000 previously. Similarly, 151,000,000 respondents report a level of optimism of more than eight, compared to just 51,000,000 in June.
Opportunities in more indebted entities
There are more opportunities in the market for more indebted entities, according to the latest results. Some 7013MT of respondents say they have identified them - of these 4113MT say they are of interest, 2913MT say they are not. This compares with 541,000,000 respondents in June who said they had come across such opportunities.
Most expect a U-shaped recovery
While the majority (63%) of respondents still anticipate a U-shaped recovery (compared to 82% in June), the number of respondents expecting a V-shaped recovery increased significantly from 10% to 27%. This increase in optimism is likely to be the result of vaccines becoming available from the first quarter of 2021, along with government measures to support businesses.
The most common "other" answer besides U or V was a K-shaped recovery, which occurs when different segments of the economy recover at different rates after a recession.
Confidence in doing business remotely
Investors are now more comfortable working from home than in June; 89% of investors say it is possible to conclude deals remotely, compared to 88% in the previous survey. More than a third (37%) of respondents now see completing deals from home as "'business as usual", which is 23 percentage points higher than June's findings. Only 11% say it is "not possible" to conclude business from home, one percentage point lower than in June.
Shorter delays in expected departures
Just over half of those surveyed (51%) expect to delay their exit strategies for the next 6-12 months or more. This is 28 percentage points less than in June, when 79% of respondents said their exit timings would be delayed. This also indicates an increase in the level of optimism emerging in the second half of 2020.
Governments have reacted well, say most investors
The majority of respondents (65%) believe that their government has reacted well to the pandemic (vs 51% previously). However, a significant proportion (20%) still consider it too early to make a statement (vs 31% previously). The percentage of participants who feel that their government has not reacted well fell from 20% to 15% in the latest poll.
As in the last survey, the majority of participants were from private equity funds. leveraged buyout e growth capitalThis represents a total of 75% of all respondents. Other respondents came from venture capital, distressed or private debt funds. Survey participants were mostly located in the UK and Europe (84%), with the remaining respondents in Asia (6%) and the Americas (1%).
The majority of investors surveyed had a fund size between 0 and 500 million pounds. The most common fund size was 51 million pounds (37%), with the second most common being less than 50 million pounds (33%). These two fund sizes account for around 70% of respondents.
Mazars is an international, integrated partnership specializing in audit, accounting, consulting, tax and legal services*. It operates in more than 90 countries and territories around the world and draws on the expertise of more than 42,000 professionals - 26,000+ in the Mazars integrated partnership and 16,000+ via the Mazars North America Alliance - to support clients of all sizes at every stage of their development.