Research Edition: Deal markets find life

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The Weekend Pitch: Research Edition

November 29, 2020

We've aggregated a mix of recent research from our analysts

2020 continues to offer us incessant uncertainty, financial and political turmoil, and, unfortunately, a devastating record of COVID-19 cases and deaths. A few months ago, we published a research edition of this newsletter and at the time, the aforementioned struggles had ground many markets to a halt. As of today, we've seen the deal markets rebound and find life, which bodes well for global market participants.

Financial and strategic buyers alike are actively looking for growth opportunities amidst murky financial and government policy, the innovation ecosystem has begun to see deal flow pick up in meaningful ways, and credit spreads are back to within 80 basis points of this year's pre-COVID low. As we march toward year-end and the official change of power in the U.S., the flow of information has been rapid.

So with that, we're back with another special research edition to help you keep pace with massive movements in the private capital markets. We've aggregated an eclectic variety of recently published research from our various analyst teams to help you better track the market adjustments and opportunities that we're hard at work monitoring.

If you have any comments or questions, reach out to me directly at nizar.tarhuni@pitchbook.com or to the team at analystresearch@pitchbook.com We hope you find the following helpful in your practice.

Best,

Nizar Tarhuni
Director of Research & Analysis

Introducing PitchBook Manager Style

(Abstract Aerial Art/Getty Images)

Private markets have long lagged their public counterparts in their ability to apply systematic, quantitative metrics to evaluate a fund manager's investment approach.

To address that, we've developed the PitchBook Private Manager Style Framework, a new set of metrics to help investors evaluate how a GP's check sizes, deal types and specializations across industries, geographies and strategies compare to the rest of the market. We apply a suite of quantitative systems to help our clients:

Compare and contrast GP strategies

Ensure that a manager's actual investment practices are consistent with its stated strategy

Understand how a GP strategy fits within an investor's private market allocation

PitchBook Platform clients will begin seeing the manager style framework incorporated into GP profiles in early 2021. We've published our initial framework below in addition to a couple of case studies that put the framework into practice.

PB Manager Style Framework

Case Study: Private Equity

Case Study: Venture

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SPACs are here to stay, but the pace will surely decline

While the markets in 2020 have undergone unfathomable volatility at times, the proliferation of blank-check companies looking to leverage reverse mergers to float private companies has been an unusual and sometimes puzzling trend.

While new variations to the traditional IPO, such as direct listings, were made more "normal" in 2019, the market has seen SPACs come forward from all corners of the financial markets. In a recent note, our venture analysts dive into this phenomenon, unpacking the incentives available to the various market participants involved in a SPAC, while also providing clarity around the actual mechanics of how such transactions work.

We expect that once financial markets move to a more normal growth state, the volume of SPAC deals will likely subside given that these transactions remain expensive to execute and don't allow for the typical initial capital raise private companies may need. There are a number of other factors that inform our long-term outlook, and you can find those in the note:

read it now

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Vaccine hunt underpins COVID-proof opportunity in commercial lab spaces

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As the world braces for the potential release of novel COVID-19 vaccines, one opportunity that our analysts have come across this year sits in the tangential market of commercial lab space.

Given the complicated safety infrastructure that many life sciences companies require, landlords and real estate developers able to cater to this growing market find themselves in a unique position to capitalize on vacancy rates that are lower than the broader commercial office space market. And since many scientists and technicians are unable to conduct their work in a remote setting, surrounding industries—mainly retail and residential—are also poised to benefit.

As investors navigate this niche sector, our analysts created the Market Ecosystem Scores, a quantitative system used to rank the top 15 US metro areas in the life sciences space based on relative maturity, growth and the importance of the industry in a given region. The intention is for investors to leverage our framework to identify potential hotspots and outcroppings of markets experiencing, or poised to experience, outsized growth:

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Specialists keep propelling tech deal flow, despite thematic push from big generalists

As the private equity industry has become increasingly competitive, some have forecast that return profiles will undoubtedly come under pressure.

The past decade, however, has seen a significant rise in the ability of specialists to deploy savvy investment strategies backing high cash-flowing enterprise software businesses, in turn helping protect fund IRRs. In fact, over the past decade, tech-focused PE funds have outperformed non-tech buyout and non-tech growth equity strategies in terms of IRR and TVPI.

And despite a tech-focused push by bigger generalists, specialist funds such as Thoma Bravo, Silver Lake and Vista Equity Partners continue to dominate the space, at times raising funds literally five to 10 times the size of tech funds raised by global PE giants like Blackstone, KKR or The Carlyle Group. We're also seeing a growing crop of smaller specialist funds gain prominence in the shadows of these tech fund pioneers.

In the following note, we explore the evolution of private capital flows into the enterprise software space and help shed light on the current landscape:

read it now

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Emerging technology deep dives

Our emerging technology team provides incredible breadth, with dedicated analyst coverage across 12 broad tech sectors comprising nearly 70 industry segments such as micromobility, network security, clinical trial technology and wealthtech.

Each quarter, our analysts publish sector deep dives available to paying PitchBook clients in addition to a consistent stream of thematic research. The deep dives we've published this quarter are listed below (we've included executive summaries for non-clients):

Quarterly market updates

As we near the end of the year, the following reports set the stage for the final quarter of a historic 2020.

The third quarter served as our first complete financial period following the horrendous market volatility experienced during the early stages of the COVID-19 outbreak. In many ways, the deal markets were incredibly busy in Q3 as participants picked up the pieces from paused transactions and financial and strategic buyers alike looked to sift through the rubble to spot compelling deals.

See our latest market updates below:

Private equity

Venture

M&A

Since yesterday, the PitchBook Platform added:

157

People

35

Companies

See what our data software can do

This special edition of The Weekend Pitch was produced by Nizar Tarhuni, director of research and analysis.

Learn more about the PitchBook Institutional Research Group and visit our reports library to get access to more analyst content.