Global Private Equity Report

Letter from Hugh MacArthur: There Is No New Normal

Pent-up demand for deals post-Covid could give a boost to 2021.

By Hugh MacArthur

First published on Μαρτίου 01, 2021
min read


This article is part of Bain's 2021 Global Private Equity Report. Explore the report Dear Colleague: What can one say about such an unusual, tumultuous year? Most numbers won’t tell the story. Whether you look at the value of deals done, exits accomplished, funds raised or returns generated, you will see data that is generally in line with the past few years’ results. One figure that stood out to me was the number of deals transacted by PE firms, which was down about 1,000 in 2020 from recent levels. That has portents for 2021. Total investment value last year was supported by ever-larger deals, not more deals. This fact is important because it means many GPs did not get the deals done that they had intended to in 2020. With soaring levels of dry powder, robust credit markets and recovering economies, 2021 deal markets promise to be incredibly busy. The sectors that have proven most resilient to the pandemic are familiar: technology (especially enterprise software), industrial goods (including building products and packaging), financial services (especially fintech and payments) and healthcare (especially services). These four broad sectors accounted for over 65% of all transactions last year and are set to host most of the action in 2021. In this year’s Global Private Equity Report, we look deeply into several other trends that are changing the PE landscape: the continued rise of ESG/sustainability, how firms are identifying the management and board talent required to successfully execute an investment thesis, the benefits and limits of virtual selling, and what to make of SPACs. Lastly, we peer into our crystal ball to look at evolutionary forces reshaping the PE industry itself and consider what the increasing specialization of firms and products will mean for the future of alpha generation and the classic buyout fund. We hope you enjoy this year’s report and look forward to gathering again when possible. Acknowledgments This report was prepared by Hugh MacArthur, head of Bain & Company’s Global Private Equity practice; Mike McKay, advisory partner; and a team led by Johanne Dessard, vice president of the Global Private Equity practice. The authors wish to thank Christophe De Vusser, Rebecca Burack, Kiki Yang, Graham Rose, Alexander De Mol, Graham Elton, Suvir Varma, Jim Strang and Brenda Rainey for their contributions on market trends; Chris Dent, Mattias Geise, Mark Kovac, Tom Whiteley and Chris Cooley for their perspectives on virtual selling; Axel Seemann, Dale Hardcastle, Deike Diers and Jacqueline Han for their contributions on ESG investing; David Waller, Courtney della Cava, Justyna Nowicka, Kristin Schroeder and Rolf-Magnus Weddigen for their perspectives on talent; David Lipman and Christopher Perry for their insights on technology; Tim Cochrane and Justin Miller for their input on financial services; Kara Murphy and Nirad Jain for their insights on healthcare; Karen Harris for her input as managing director of Bain’s Macro Trends Group; Daniele Rossi, Matteo Beilin, Vaibhav Agarwal, Matt Cook and Vincent Poon for their contributions and analytic support; Emily Lane and John Peverley for their research assistance; Soraya Zahidi for her marketing support; and Michael Oneal for his editorial leadership. The authors are grateful to Cambridge Associates, CEPRES, DealEdge, PitchBook, Preqin, and Jason Mao of State Street Global Markets and State Street Private Equity Index for the valuable data they provided and for their responsiveness to our special requests. For more information about Cambridge Associates’ fund and investment-level benchmarks, email PrivateBenchmarks@cambridgeassociates.com. For more information about CEPRES, visit www.cepres.com or email info@cepres.com. For more information about DealEdge, visit www.dealedge.com. For more information about PitchBook, visit www.pitchbook.com or email info@pitchbook.com. For information about Preqin, visit www.preqin.com or email info@preqin.com. For more information about State Street Global Markets and State Street Private Equity Index, email fundindex@statestreet.com. More from the report Letter from Hugh MacArthur 2020: Escape from the Abyss The Expanding Case for ESG A Left-Brained Approach to Portfolio Company Talent Decisions Capturing the True Value of Virtual Selling and Sales Plays SPACs: Tapping an Evolving Opportunity Have Classic Buyout Funds Run Their Course? Read our 2021 Global Private Equity Report Explore the full report Download the PDF

Dear Colleague:

What can one say about such an unusual, tumultuous year? Most numbers won’t tell the story.

Whether you look at the value of deals done, exits accomplished, funds raised or returns generated, you will see data that is generally in line with the past few years’ results. One figure that stood out to me was the number of deals transacted by PE firms, which was down about 1,000 in 2020 from recent levels. That has portents for 2021.

Total investment value last year was supported by ever-larger deals, not more deals. This fact is important because it means many GPs did not get the deals done that they had intended to in 2020. With soaring levels of dry powder, robust credit markets and recovering economies, 2021 deal markets promise to be incredibly busy. The sectors that have proven most resilient to the pandemic are familiar: technology (especially enterprise software), industrial goods (including building products and packaging), financial services (especially fintech and payments) and healthcare (especially services). These four broad sectors accounted for over 65% of all transactions last year and are set to host most of the action in 2021.

In this year’s Global Private Equity Report, we look deeply into several other trends that are changing the PE landscape: the continued rise of ESG/sustainability, how firms are identifying the management and board talent required to successfully execute an investment thesis, the benefits and limits of virtual selling, and what to make of SPACs. Lastly, we peer into our crystal ball to look at evolutionary forces reshaping the PE industry itself and consider what the increasing specialization of firms and products will mean for the future of alpha generation and the classic buyout fund.

We hope you enjoy this year’s report and look forward to gathering again when possible.

Acknowledgments

This report was prepared by Hugh MacArthur, head of Bain & Company’s Global Private Equity practice; Mike McKay, advisory partner; and a team led by Johanne Dessard, vice president of the Global Private Equity practice.

The authors wish to thank Christophe De Vusser, Rebecca Burack, Kiki Yang, Graham Rose, Alexander De Mol, Graham Elton, Suvir Varma, Jim Strang and Brenda Rainey for their contributions on market trends; Chris Dent, Mattias Geise, Mark Kovac, Tom Whiteley and Chris Cooley for their perspectives on virtual selling; Axel Seemann, Dale Hardcastle, Deike Diers and Jacqueline Han for their contributions on ESG investing; David Waller, Courtney della Cava, Justyna Nowicka, Kristin Schroeder and Rolf-Magnus Weddigen for their perspectives on talent; David Lipman and Christopher Perry for their insights on technology; Tim Cochrane and Justin Miller for their input on financial services; Kara Murphy and Nirad Jain for their insights on healthcare; Karen Harris for her input as managing director of Bain’s Macro Trends Group; Daniele Rossi, Matteo Beilin, Vaibhav Agarwal, Matt Cook and Vincent Poon for their contributions and analytic support; Emily Lane and John Peverley for their research assistance; Soraya Zahidi for her marketing support; and Michael Oneal for his editorial leadership.

The authors are grateful to Cambridge Associates, CEPRES, DealEdge, PitchBook, Preqin, and Jason Mao of State Street Global Markets and State Street Private Equity Index for the valuable data they provided and for their responsiveness to our special requests. For more information about Cambridge Associates’ fund and investment-level benchmarks, email PrivateBenchmarks@cambridgeassociates.com. For more information about CEPRES, visit www.cepres.com or email info@cepres.com. For more information about DealEdge, visit www.dealedge.com. For more information about PitchBook, visit www.pitchbook.com or email info@pitchbook.com. For information about Preqin, visit www.preqin.com or email info@preqin.com. For more information about State Street Global Markets and State Street Private Equity Index, email fundindex@statestreet.com.