PitchBook News - PE is in ludicrous mode

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The Research Pitch

July 10, 2021

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Many of US PE's annual records will be broken this year

The US private equity industry is putting up ludicrous figures.

Dealmaking, exit activity and fundraising are all trending toward record figures. Performance, being driven by a buoyant stock market, is coming along nicely, as well.

Dealmaking is red hot up and down the size spectrum. Nearly three-quarters of all deals have been add-ons through the first six months of the year.

Conversely, $5 billion+ buyouts are back with a vengeance. An expected jump in capital gains taxes is spurring a rush to close buyouts of family-owned businesses by year-end, including a gargantuan deal for a majority stake in Medline, which pegs the company's enterprise value at a staggering $34 billion.

Exit activity has perhaps been the most surprising. Driven by public listings, PE-backed exit activity is already approaching 2020's annual figures. SPACs and IPOs dominated the largest exits and continue to propel pricing higher.

Robust economic growth and increasing PE allocations are driving LPs to find new strategies and GP relationships.

Fundraising is benefitting from pent-up demand because funds did not close in 2020, as well as a plethora of mega-fund offerings ($5 billion+). On average, LPs continue to view private equity favorably and are seeking to maintain or boost allocations.

To read about these trends, and more, in greater detail, download our just-released Q2 2021 US PE Breakdown.

As always, feel free to reach out to our analysts with any comments or questions.

Best,

Wylie Fernyhough
Senior Analyst, Private Equity

Share:

Thematic Research

High Valuations, Higher Returns

Nontraditional investors have become a very regular part of the venture ecosystem.

And according to the data we have on VC returns, don't expect the outsized influence of hedge funds, PE firms, corporate investors and others to change any time soon. Some highlights from our new research:

Nontraditional investors participated in 77% of the US VC deal value last year and 95% of total exit value.

Annualized returns for nontraditionals have surpassed 30% at the Series A stage, while later-stage returns are around 10% to 15%.

The median hold time for nontraditionals (often focused on later stages) is under four years, far shorter than is typical for the broader industry.

We unpack much more on the impact of nontraditional investors, with their estimated $300 billion in capital supply, and what to expect in the future:

read the free research

Does an Allocation to Private Equity Add Value?

Private equity's private nature has led to much debate about the true benefit of investing in the asset class relative to public equities.

Indeed, several pieces of academic research haven't been flattering to PE returns when accounting for the fees and illiquidity.

So, is it all worth it?

In new research this week, we introduced a new way to measure PE performance by simulating realistic investor outcomes using historical cash flows and data on net asset value. Our findings show:

The addition of a 20% allocation to randomly selected buyout funds in a 60/40 portfolio did result in positive annualized excess returns (i.e., investing in PE added value).

Differences in fund selection created a wide dispersion of excess returns across the upper and lower quartiles.

The value added by PE has fluctuated over different periods and returns have been less positive over the past decade ended 2020.

Read the full note to get the exact values and more insight into how we approached this analysis:

read the free research

Emerging Tech Research

(click to enlarge)

SPACE TECH: It's no secret that much attention these days is being directed toward the stars.

And with billionaires Branson and Bezos soon flying to suborbital space, VC funding into space tech is also taking off.

Our latest Vertical Snapshot, available to clients only, provides an in-depth overview across the terrestrial, orbital and exploratory segments. The research also features industry growth drivers, a market map, a time horizon chart of future space tech opportunities (see above), and a visualization of key categories and companies.

Key themes:

Greater commercial participation in the space economy is being driven by decreasing costs due to improved launch technologies and smaller satellites.

Big ideas about colonies on Mars or asteroid mining are exciting, but they're not realistic in the short term until additional underpinning technologies are refined and established in orbit.

Substantive international cooperation will be required to set rules around the tracking and disposing of space objects, the militarization of space, and orbital priority.

PB clients can access the research

Deal Commentary

Senior PE analyst Wylie Fernyhough weighs in on the recent news involving private equity firms going public:

"The value of private equity firms has continued to balloon as assets have poured in. Some firms have amassed tens of billions in AUM, making these companies worth several billions of dollars.

"The largest managers, including KKR, Blackstone and Apollo, tapped public markets years ago, but the next generation of managers chose other options.

"Firms like Dyal, Petershill and Blackstone have provided a private financing option for years in the form of GP stakes—buying a minority equity stake in the manager.

"Now, though, it appears the largest GPs are once again interested in publicly listing. In the past two weeks, Bridgepoint, a UK-based buyout firm with circa €27 billion in AUM, publicly announced plans to list on the London Stock Exchange.

"Soon after, news broke about Texas-based TPG considering a SPAC merger that would value the manager at approximately $10 billion. This all comes on the heels of a recent Blue Owl listing.

"With Blue Owl, EQT and several other private capital managers achieving healthy valuations, it is likely that more $50 billion+ AUM private capital firms consider public listings, as detailed in previous research on monetizing GP stakes."

Wylie Fernyhough

Senior Analyst
Private Equity

In the News

Our insights and data featured in the press:

Does the surge in public listings for autonomous vehicle startups indicate a tech breakthrough? Maybe not, says analyst Asad Hussain: "I definitely feel like this is more of a sentiment shift than a technological shift." [Bloomberg]

Analyst Andrew Akers explains how he approached measuring the value that PE adds to an LP's portfolio, and also why there are still issues to be resolved as the asset class opens to retail investors. [Insider]

A new breed of hydroponic farm is proliferating across America. Our supporting data shows just how much venture funding to going into indoor farming startups. [New York Times]

If you're a media member interested in interviewing our analysts, contact our PR team.

ICYMI

Highlights from our other research content published over the past few months:

Market updates

Thematic research

Emerging Technology Research (report previews)

Coming next week (subject to change)

Q2 PitchBook-NVCA Venture Monitor
2021 Private Equity Outlook: H1 Follow-Up
Analyst note: Reinventing Meat

Thanks for reading! Feel free to email us any time with feedback, questions or tips!

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PitchBook News - PE is in ludicrous mode

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