2020 was a strong year for private equity, driven by robust activity in the third and fourth quarters. Despite the global economic challenges presented by the pandemic, private equity proved that it is a resilient asset class.
Although 2020 deal volume on both a global and North American basis declined year-over-year, the fourth quarter was particularly strong. In North America, there were $97.8 billion of transactions in the fourth quarter of 2020, as compared to $53.6 billion in the fourth quarter of 2019—a year-over-year increase of 82%. Global deal volume in the fourth quarter increased approximately 40% year-over-year to $153.8 billion. Given the significant weakness in deal volume experienced during the second quarter, full-year 2020 volume was lower on both a North American and global basis, with year-over-year declines of 4% and 7%, respectively. However, 2020 still represents one of the stronger deal environments since 2007.
Dry powder at December 31st set an all-time high of $865 billion, an increase of 4% from September 30th levels. Despite the market dislocation in early 2020, the quarterly trend of setting all-time records for dry powder continues. Transaction multiples paid also demonstrated strength, as average multiples paid in 2020 stood at 11.6x—a record, as it is slightly higher than full year 2019’s level of 11.5x. Average leverage for buyouts in 2020 was 5.9x multiple of EBITDA, which is consistent with the prior three years. Equity contribution as a percentage of total capitalization was at 43%, again consistent with both 2018 and 2019. In full year 2020, the number of exits decreased approximately 11% year-over-year, though dollar volume increased by nearly 7%, reflecting larger monetizations.
During the last six months of 2020, the private equity industry demonstrated dramatic strength coming off a particularly poor second quarter. While the pandemic has had a material adverse effect on the global economy, the dramatic rebound in deal volume from the second quarter has been striking. Further, the continued increase in dry powder will, in some ways, ensure that deal volume over the long term will carry on at a solid pace. However, as stated in previous updates, it is far too soon to declare stability in private equity. While it is encouraging that the COVID-19 vaccination process has begun across the U.S., there are many other factors that will impact the private equity industry, including the speed and effectiveness of the global rollout of the vaccines, socioeconomic considerations, geopolitical concerns, and corporate profits.
For full year 2020, year-over-year deal volume decreased 4% in North America and 7% globally.
Buyout dry powder at December 31, 2020 stood at $865 billion, an all-time record and a 4% increase from September 30th.
In 2020, the number of exits decreased approximately 11% year-over-year, while dollar volume increased by nearly 7%, reflecting larger monetizations.
LBO multiples for calendar 2020 averaged 11.6x, which eclipsed the prior record of 11.5x set in 2019.