Private Equity

The third quarter proved to be a very strong one for the private equity industry and more robust than many predicted. Despite the COVID-19 pandemic’s continued adverse effects on the global economy, private equity proved to be a resilient asset class. Consistent with last quarter’s update, we will analyze year-over-year activity on a third quarter basis, in addition to on a year-to-date basis where relevant.

Third quarter 2020 deal volume, on both a global and North American basis, increased year-over-year. In North America, there were $63.6 billion of transactions in the third quarter of 2020, as compared to $56.2 billion in the third quarter of 2019—a year-over-year increase of 13%. Global deal volume in the third quarter of 2020 increased approximately 4% year-over-year to $110.1 billion. Given the significant weakness in deal volume experienced during the second quarter, year-to-date volume was lower on both a North American and global basis, with year-over-year declines of 19% and 17%, respectively.

Dry powder at September 30th set an all-time high of $830 billion, an increase of 4% from June 30th levels. It is interesting to note that dry powder increased during the third quarter despite global economic uncertainty and strong deal volumes, reflecting a solid fundraising environment. Transaction multiples paid also demonstrated a degree of stability. Year-to-date, average multiples paid stood at 10.9x, which—although down slightly from the record 11.5x achieved for calendar 2019—is still on the upper end of the historical range. Average leverage for buyouts year-to-date was 5.5x multiple of EBITDA, which is slightly lower than the prior three calendar years. Equity contribution as a percentage of total capitalization was at 44%, which is consistent with both calendar 2018 and 2019. In the third quarter of 2020, the number of exits decreased approximately 15% year-over-year, though dollar volume increased substantially—by nearly 60%—reflecting larger monetizations. For the first nine months of 2020, exits and dollar volume were lower year-over-year—down 28% and 26%, respectively—reflecting the weak second quarter.

During the third quarter, the private equity industry demonstrated resilience and rebounded from an expectedly weak second quarter. As stated in prior updates, given the nature of the industry, one quarter does not make a trend. As a result, it is far too soon to declare stability in private equity, as socioeconomic factors, corporate profits, geopolitical concerns, and the broad availability of a COVID-19 vaccine will have a significant impact on the performance of the asset class in the future.

For the first nine months of 2020, year-over-year deal volume decreased 19% in North America and 17% globally.

Buyout dry powder at September 30, 2020 stood at $830 billion, an all-time record and a 4% increase from June 30th.

The first nine months of 2020 were weaker year-over-year, with the number of exits decreasing 28% and dollar volume down 26%.

LBO multiples through the first nine months of 2020 stood at 10.9x, which—although lower than calendar 2019—remains high relative to historical levels.

Angelo Gordon’s Capital Markets Perspectives

AG Capital Markets Perspectives (“CMP”) provides our portfolio managers’ views on the credit, real estate, and private equity markets. To access this quarter’s CMP and past quarterly reports, please complete the form below.

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