In the first quarter of 2021, the private equity industry continued the strong momentum seen in the second half of 2020. Many of the major metrics used to assess the sector are quite bullish. While this bodes well for the remainder of 2021, enthusiasm still must be tempered given ongoing uncertainty related to COVID-19 and other economic and geopolitical factors.
First quarter 2021 deal volume was quite robust on both on a North American and global basis. In North America, transactions totaled $85 billion in the first quarter of 2021, as compared to $60 billion in the first quarter of 2020—a year-over-year increase of 42%. Global deal volume in the first quarter increased approximately 30% year-over-year to $139 billion. Although still early in the year, deal volume is on pace to have one of its strongest years in recent memory.
Dry powder at March 31st set an all-time high of $885 billion, an increase of 2% from December 31st levels, continuing the quarterly trend of setting all-time records for dry powder. Also demonstrating strength were the transaction multiples paid. First quarter 2021 average multiples paid stood at 11.9x, slightly higher than full year 2020’s all-time record of 11.6x. Average leverage for buyouts year-to-date was 6.3x multiple of EBITDA, which is at the upper end of historical levels. Equity contribution as a percentage of total capitalization was at 43%, consistent with the last several years. Finally, in the first quarter of 2021, the number of exits increased approximately 22% year-over-year, while dollar volume increased 110%, reflecting larger monetizations.
Private equity has proven to be a resilient asset class. Although the pandemic adversely affected deal volumes and transaction multiples in the first half of 2020, the last nine months have demonstrated profound strength. Given bullish economic data, strong public markets, portfolio company financial outperformance, and the continued rollout of COVID-19 vaccinations, private equity managers are generally feeling optimistic about the prospects for 2021. Furthermore, the significant amount of dry powder will ensure that, over the intermediate-to-long term, deal volume will remain high. Barring unforeseen geopolitical conflict, weaker-than-expected economic performance, or a dramatic resurgence of COVID-19 cases, 2021 should prove to be a good year for the industry.
First quarter 2021 deal volume increased 42% in North America and approximately 30% globally on a year-over-year basis.
Buyout dry powder at March 31, 2021 stood at $885 billion, an all-time record and a 2% increase from December 31, 2020.
The number of exits increased approximately 22% year-over-year in the first quarter of 2021, while dollar volume increased 110%, reflecting larger monetizations.
Average LBO multiples in the first quarter of 2021 stood at 11.9x, which is on pace to eclipse the prior full-year record of 11.6x set in 2020.