PE industry runs hot as pent-up demand is unleashed

Dechert LLP / Mergermarket Report finds record US$1.17tn worth of deals recorded during January September 2021, eclipsing every prior full-year total back to 2015. In addition:

- 60% of North American PE firms expect a significant increase in Limited Partner scrutiny of ESG issues and reporting

- 45% of PE firms increased their use of private credit financing in buyouts over the last three years.

News provided by

Dechert LLP

Nov 09, 2021, 11:53 ET

NEW YORK, Nov. 9, 2021 /PRNewswire/ -- Global law firm Dechert LLP has published its Global Private Equity Outlook Report in association with Mergermarket, a leading provider of M&A data and intelligence.

The Report which examines how private equity (PE) firms continue to navigate out of the pandemic, found that unprecedented deal activity is not letting up, with the industry set to far exceed previous records.

Between January - September 2021, there was US$1.17tn worth of deals recorded, eclipsing every prior full-year total since 2015. Annual PE deal value is expected to more than double year-on-year heading into 2022.

"Record deal volumes, historically low interest rates and huge amounts of dry powder is a combination for explosive alternative asset industry growth, which is expected to continue for several years, and with our complementary practices, Dechert is well-positioned to take advantage of these extraordinary growth opportunities. Additionally, the areas with the most growth, TMT and pharma/medical/biotech are, together with financial services, another growth area, among the sectors in which Dechert's PE team has been most active in deal making," said Dr. Markus P. Bolsinger, co-head of Dechert's global PE practice.

The Report is comprised of 100 senior-level executives surveyed at PE firms in North America (45%), EMEA (35%), and Asia-Pacific (20%) second and third quarter of 2021.

Potential headwinds on the horizon
The Report cautions that the PE industry should not become complacent. Potential concerns, such as the spread of the Covid-19 Delta variant, supply chain disruptions, labor shortages and persistent inflationary trends, could disrupt the industry's growth trajectory. However, 41% of North American respondents expect market conditions for PE exits over the coming 12 months to be favorable.

ESG remains key
A consistent investment theme is ESG with 29% of respondents noting climate change as the most important ESG consideration when contemplating investing, with sustainability as the second most-selected consideration (14%). This development was reflected by 60% of North American respondents and 49% of EMEA respondents expecting a significant increase in Limited Partner (LP) scrutiny of ESG issues and reporting in deals over the next three years.

Divergence emerges
Looking ahead, the Report recognises a divergence between large well-established players and smaller, mono-line or less well-established market participants, making it harder for new entrants to establish themselves. The sheer size of transactions is witnessing a revival of club deals in the US, birthplace of the megadeal, with 53% of North American General Partners (GPs) anticipating the increasing prevalence of club deals in the pandemic's wake,

Interestingly, almost half (45%) of respondents surveyed say they have increased their use of private credit financing in buyouts over the last three years, a noticeable jump from Dechert's previous Report, when 35% of respondents reported the same.

Continuation funds on the rise
The Report also identifies the rising phenomenon of GPs selling assets to "continuation funds", which are also managed by themselves, allowing investors to maintain exposure to particular assets.

The Global Private Equity Report is published yearly by Dechert LLP and Mergermarket. Founded more than 35 years ago, Dechert's Global Private Equity practice advised on some of the first fund formations and buyout transactions.

Download Report

Media Queries:
Susan Peters
Dechert LLP
susan.peters@dechert.com

About Dechert's Global Private Equity Practice
Dechert is a leading global law firm with 22 offices around the world. Our global team advises private equity, private credit and other alternative asset managers on flexible solutions at every phase of the investment life cycle. We form funds structured for market terms and tax efficiency; negotiate investments and advise on transactions and financings that maximize value; and structure and execute exits accomplished at the right time and delivering the best returns.

About Mergermarket
Mergermarket is a business development and market intelligence tool designed specifically for the M&A sector and provides proprietary intelligence and analysis on corporate strategy across the world. Visit www.mergermarket.com to learn more.

SOURCE Dechert LLP