As we move forward after a historically chaotic year in private equity dealmaking, dry powder is at an all-time high, and fundraising has dramatically increased. But the jury is still out as to whether this will translate to increased portfolio company turnover. Normally, with uncertainty surrounding exits and disagreement around valuations, the answer would be no. But today’s dealmakers are always pursuing novel ways to deliver investor returns.
At a recent webinar, “Exit Trends & Opportunities in Private Equity,” Datasite and PitchBook brought together a panel of industry experts to talk about the very latest exit trends, and where they're seeing risks and opportunities. Brandon Mavleos, Sr. Director, Product Marketing at Datasite, led an informative discussion in which the group took stock of the past year, discussed market trends, and provided a preview of what’s in store for 2021.
Garrett James Black, Senior Manager at PitchBook, set the stage for the discussion with an overview of some of the top trends in private equity exit volumes in 2020. He stated that, although the global pandemic had a massive impact, some cyclical declines had already been underway in the years prior. He also observed that, despite the pandemic, buyer appetite for attractive assets and companies remained healthy. At the same time, fewer chances at desirable exits could nonetheless lead to some diminishing returns for PE fund managers. When examining exit timelines, Garrett noted that, even in a cyclical downturn, there are still plenty of opportunities for sellers most prepared to exit their portfolio companies.
In a live poll, 44 percent of webinar participants indicated that the pandemic and accompanying market events had extended their exit timelines by up to two years. Joshua Rosenbaum, Managing Director at RBC Capital Markets, talked about some of the logistics challenges the pandemic had created in allowing buyers to evaluate potential purchases without visiting sites and spending time with management teams. He noted that organizations are achieving success selling assets in a virtual world, is observing a bull M&A market and that the same is true for other capital markets.
The conversation pivoted to a discussion of the new exit options that are contributing to momentum. In 2020, traditional exit avenues like IPOs and selling to corporations remained the most popular, but PE fund managers were also looking for ways to capitalize on a hot equities market. We witnessed more than $75 billion in SPACs raised in 2020, as previously lesser-known vehicles became more mainstream.
Bob McCooey, Senior Vice President at Nasdaq, discussed the fact that SPACs have been widely embraced by investors of all kinds. They accounted for less than 3 percent of all deals in 2014, and make up more than 50 percent of the market today—and almost 70 percent of IPO activity. He added that one of the most compelling qualities of SPACs is their ability to democratize the market, allowing most any investor to get access to the expertise of some of the most interesting PE and VC firms in the world.
Kristen Grannis, Partner at Latham & Watkins, pointed out that emerging options like SPACs have introduced additional complexity and steep learning curves into exits. She cautioned that although SPAC transactions offer benefits in agility, they require the same level of public company readiness as any IPO, which is often overlooked.
The conversation shifted, as panelists presented their thoughts on how new regulatory policies could impact private equity. Grannis stated that environmental, social and governance (ESG) issues are a tremendous focus across private equity, and is seeing clients with renewed focus on packaging their companies with an ESG angle in terms for sale processes.
Rosenbaum added that he is increasingly seeing large private equity funds establishing pools of capital that are dedicated specifically to ESG. He stated that private equity firms are constantly thinking of how to position their assets for exits, and that firms that are not considering how an asset strikes ESG themes for an exit aren’t fully considering its value.
The webinar concluded with a snapshot of trends and expectations for specific sectors. Black pointed out that PE fund managers were searching for exiting investments in sectors that have been less impacted by the global pandemic, such as healthcare and IT. McCooey and Grannis added some perspective, observing that technology is increasingly part of a wide variety of industries, including FinTech, EdTech, RegTech. The companies that are changing today’s world will continue to lead the market higher in terms of indices, as well as IPO activity—in the U.S. and across the globe.
The forum wrapped up with an interactive Q&A session exploring topics like the valuation of the tech sector throughout the pandemic, the impact of the recent election on PE outlooks, and some of the biggest challenges to sponsor relationships over the past year.
If you’d like to go deeper into insights from Datasite and PitchBook, sign up to view the webinar. Or download our exclusive report, “Invest in Insight: Private Equity Market Brief on Exits.”
Data Source: Datasite webinar presented with PitchBook, "Exit Trends and Opportunities in Private Equity", February 2021.