2020 has been a tale of diverging fortunes for private equity activity in different parts of the world, according to recent research published by Ernst & Young. The number of deals to have been struck in Asia has soared, while in the Americas, usually a hotbed of private equity activity, the market has stalled.
In short, the year’s levels of private equity activity internationally have roughly tracked the impact of the Covid-19 pandemic on different economies. In much of Asia the virus was firmly quashed during its first wave and relative control of the situation has been well managed since. Europe and the Americas have fared far less well.
First waves dragged on. And a summer loosening of restrictions has seen second waves, often more powerful than the first, sweep across countries and economies from September, with gathering pace as the autumn has progressed.
That’s reflected in the value of private equity investment levels, which have slumped by 44% on last year’s totals in the Americas over 2020. European activity has not been as muted by the pandemic as it has across the Atlantic and levels are roughly flat on last year’s values. The same can be said of the Middle East and Africa.
The data comes from an Ernst and Young report published yesterday. Globally, the total value of private equity deals is down 12% on the same period in 2019. Transaction levels are down more steeply with a 30% drop. To the end of September private equity companies invested a total of $353 billion, compared to $401 billion over the same 9 months in 2019.
But activity levels in Asia have been the exception. For KKR, a major private equity firm, Asia was by far its busiest region for capital deployment, especially in the third quarter. The investor’s emphasis on Asia has been influenced by the region’s faster recovery from the pandemic. Head of investor relations Craig Larson told investors on an October 30th call that Asian deals “should help as most Asian economies haven’t seen the recent spike in Covid trends that we’ve seen across several states in the US and European countries.”
The report highlights that dealmaking activity has picked up over the autumn, with levels also healthy in January and February before the pandemic struck, or started to be fully reacted to, in March. As lockdowns were wound down for the summer and international travel increased again, deal activity also rose. If the same pattern is reflected, new lockdowns in Europe and the pandemic’s second wave surging in the USA, is likely to dampen activity over the fourth quarter.
Internationally, China Investment’s $34.9 billion acquisition of a stake in China Oil & Gas Pipeline Network was the largest private equity investment of the first nine months, followed by a $19 billion deal for Thyssenkrupp Elevator by Advent International and Cinven.
The technology sector made up the highest proportion of deal value, at 22%, followed by utilities, including energy, with 14% and financials with 12%, the EY said. Overall, the sectors that saw the biggest increases in activity compared with last year were retail and utilities, while real estate and oil and gas saw the biggest declines.
Private equity exits are also down this year, at 12% lower than in 2019. Which could see a flurry of deals being eyed but held off on go through next year. Companies hit hardest by lockdown measures finding themselves in financial difficulties is also expected to charge the market during 2021.