During the third quarter of 2021, the private equity industry maintained the strong momentum seen over the past several quarters. While the third quarter wasn’t as high in deal volume and exits as the second quarter, it was still quite robust relative to historical standards. Third quarter 2021 deal volume in North America totaled $108 billion, as compared to $137 billion in the second quarter—a quarter-over-quarter decrease of 21%. However, to put these volumes in perspective, third quarter deal volume represented the second-highest level of activity in the last 10 years, only surpassed by the record performance in the second quarter of this year. Additionally, although global deal volume in the third quarter decreased to $192 billion—down approximately 15% quarter-over-quarter—it too represented the second-highest level in the past 10 years. Given this level of activity, yearly deal volume is poised to set a record on both a North American and global basis in 2021.
Dry powder at September 30th stood at an all-time high of $893 billion, which was an increase of less than 1% from June 30th levels. While the quarterly trend of setting all-time records for dry powder continues, the quarter-over-quarter increases have become smaller, reflecting a greater equilibrium in fundraising and the deployment of capital. Transaction multiples paid also demonstrated continued strength. Through the first nine months of 2021, average multiples paid stood at 11.3x—slightly below full year 2020’s all-time record of 11.6x, but still high relative to historical levels. Average leverage for buyouts year-to-date was 5.8x multiple of EBITDA, which is in line with historical levels. Equity contribution as a percentage of total capitalization was at 47%, consistent with the last several years. Finally, even though the number of exits and dollar volume in the third quarter decreased quarter-over-quarter—down approximately 12% and 26%, respectively—dollar volume has already set an all-time record, and we expect the number of exits will set a record by year-end.
2021 is shaping up to be one of the strongest years in private equity history as measured by numerous metrics. We expect deal and exit volumes will break records set in the 2006-2007 timeframe, while dry powder and transaction multiples will be at or near record levels. Strong earnings performance by portfolio companies buttressed by bullish financing, merger, and equity markets have contributed to the resilience of this asset class over the past year. As stated last quarter, factors such as increased COVID-19 infections, emerging variants, and unforeseen geopolitical risks could derail the momentum in the private equity sector, but barring these events, we believe 2021 will be considered a historic year for the industry.
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Given the level of activity during the first nine months of 2021, yearly deal volume is poised to set a record on both a North American and global basis in 2021.
Buyout dry powder at September 30, 2021 stood at $893 billion, an all-time record.
Dollar volume of exits has already set an all-time record, and the number of exits is expected to set a record by year-end.
Average LBO multiples for the first nine months of 2021 stood at 11.3x, which is consistent with the prior two years.