Private equity deals insights: Midyear 2020

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Private equity dealmaking slowed during the onset of the COVID-19 pandemic. M&A will likely rebound as the economy recovers, with a focus on value creation and strategic investing opportunities.

COVID-19 has reshaped the market and operational landscape for virtually every sector. As companies adapt to the pandemic, they face challenges across customer relations, workforce redeployment, supply chain management and more. The current crisis has also created attractive acquisition opportunities. Renewed economic growth, an intense focus on innovation and new technology, and the need to adapt to new ways of working and consuming will likely spur M&A across multiple sectors, including cross-sector investing.


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“The pandemic led most private equity firms to turn quickly to address value creation. There are deals to be made, and PE should recover in the months ahead, but firms that pivot quickly now and work with what they have could be the big winners.”​

Andrew Cristinzio, US Private Equity Sector Leader​

Trends and highlights

Steady PE dealmaking during the first quarter gave way to the pandemic’s challenges, when many firms shifted their attention toward their existing portfolio of investments. The value and volume of transactions closing during Q2 fell. The low level of activity will likely persist during Q3, reflecting the short-term pause. New deals emerging during the recovery probably may not close until Q4.​

Dealmakers pulled back from leveraged buyouts because of tight debt markets and a widening perception of the value gap between investors and business owners. Alternative strategies such as joint ventures and distressed debt have grown in popularity. For now, strategic alignment and opportunistic investing will probably fuel deal volume. While we expect leveraged buyouts to revive during 2020’s last quarter, near term M&A may be more opportunistic.

The pace of fundraising slowed during the first half of the year as firms focused on portfolio company operations, deal sourcing and deep industry analysis, all amid a slowdown in global growth. Despite the lag, firms still raised more than $100 billion during the period — less than the past several years, but still impressive.​

Growth equity and credit funds have taken a more prominent role as PEs seek out new opportunities in a highly disrupted market. They also provide liquidity to portfolio companies during a period of reduced lending. We expect engagement by growth equity and mega-funds will fuel robust fundraising in the second half of 2020, although not at the high level of 2019.

Buyout multiples rose during the first half, driven by opportunistic investing and sectors experiencing a “sugar-rush” of sudden demand. The cost of deals also increased during the second quarter in response to tight credit markets; as a result, a greater percentage of enterprise value was funded by equity rather than debt.​

We expect continued volatility in buyout multiples during the remainder of 2020, with a greater focus on creative purchase pricing and transaction mechanisms such as joint ventures, partnerships and earn-outs. These efforts could help to bridge expectation gaps between buyers and sellers. They may also alleviate concerns about business run-rate profiles, which could be adding to some of the current reluctance to execute deals. 


A decline in total deal value and volume were driven by the compression of the deals landscape in the second quarter of 2020. While the first quarter of 2020 outpaced the same period in 2019 both in terms of deal value and deal volume, the compression in the second quarter more than offset the tailwinds that drove higher deal activity in the first three months of the year, with the sharpest declines arising out of the Energy, B2B, B2C, and Materials & Resources sectors.​

Private Equity cross-sector analysis​

Technology, Media, Telecom (“TMT”) has continued to be a focus for dealmakers, despite headwinds from COVID-19. In fact, pressure from the pandemic seems to be driving more interest in the sector, driven by a desire for innovation and scalable technology, and TMT seems to be attracting even more PE investment than before the pandemic. The current environment has led to faster adoption of new technologies and behavioral changes, such as contactless purchasing and workforce management, and some of these could be here to stay. This has already shaped investing in public equities markets, and we expect PE firms to remain focused on these areas, which could lead to more early stage / growth investments. As such, TMT has shown more resiliency during the second quarter of 2020 relative to other industry groups, and we expect cross-sector investing in TMT assets to increase over the year.

Private Equity deals outlook​

Deals activity during the first half of 2020 was primarily driven by opportunistic investing driven by near-term cash flow needs of businesses driving immediate-term investing and rescue financing, while an emphasis was placed on addressing the immediate strategic needs of portfolio companies to address operational challenges from supply chain and production bottlenecks to talent and infrastructure limitations arising out of the COVID pandemic​.

The first half of 2020 was turbulent for deals activity, driven by the tightening up of credit availability and economic and market uncertainty. For the rest of the year, we expect to see more M&A activity, though perhaps below the deal value we saw in 2019. We expect the following key contributing factors to drive an active M&A market throughout the rest of 2020: focus on revisiting value creation strategies; renewed focus on core competencies and non-strategic assets; increased emphasis on strategic capabilities and gaps at portfolio companies; and a shifting landscape with companies emerging as either differentiated and well-positioned or challenged and struggling to meet the needs of tomorrow’s consumer.​

Our expectations for PE activity:​

Divestitures & restructuring: In the second quarter, virtually every private equity firm stopped what they were doing and focused inward on their portfolio. After triaging immediate issues such as liquidity and covenant compliance, most turned to their investment thesis and value creation, either to nudge or rewrite their assumptions. Leading firms looked across the spectrum of value creation levers: adapting to industry outlooks that shifted growth trajectories (usually lower), rationalizing costs, optimizing net working capital (NWC), investing in digital tools to support remote customer experience, adopting intelligent automation on the road to efficiency and cost savings, supporting employees with workforce management (WFM) tools to drive efficiency and minimize interruption, and more. We certainly expect divestitures from the restructuring to create additional capital and operational opportunities for sellers, while creating capability and market expansion opportunities for investors. But, this will require more than buying and selling: in this environment, those able to pivot successfully will likely succeed, and those that are not agile could fail. For PE firms, this will affect returns, and there will surely be winners and losers.​

Partnerships (Alliances/JVs/Other):  We expect to see partnerships continuing to grow in popularity as companies look for ways to compete through innovation or scale. These structures can help fill gaps in operations and staffing, share risks and costs, provide access to new technology or intellectual property, and more. However, given the current environment, due diligence takes on additional importance. Economic stresses may affect each entity differently, and there is no guarantee that firms will share the same level of commitment or financial flexibility, especially as operating plans begin to shift.​

IPOs: New issuances fell during the first five months of 2020 because of financial market turbulence and a sudden economic downturn. In June, though, the IPO market surged in the biggest ​

monthly gain in more than 13 years. As a result, IPO proceeds during the first half of 2020 totaled $32 billion, only 11% less than during the same period in 2019. Positive investor interest allowed many companies to price during the pandemic with adapted marketing strategies, including virtual roadshows—which may continue long into the future. We expect IPO activity to be robust across a variety of sectors for the remainder of 2020. That said, many firms may pursue a dual path as they look for the most attractive exit option.​

Strategic add-ons: The need for innovation in all aspects of operations from production capabilities to product and service delivery and talent talent management to meet the needs of a changing landscape will further drive add-on activity as PEs companies on value protection in a challenging and evolving economy, and look to value creation prospects to address the needs of tomorrow as PEs look to competitors and vendors of portfolio companies for opportunities to rapidly add differentiated talent and capabilities while building resiliency in platform investments. ​

Dry powder: Private equity funds (PE) had over $1.7 trillion of dry-powder as of July 2020 (Preqin). While leveraged buyouts drive the majority of PE investing activity, we expect an increase in add-on opportunities and strategic partnerships to drive near-term investing for PE, while leveraged buyouts will gain momentum during the end of the year. An increase in direct investing by GPs will also drive increased capital looking to execute on deals and larger platforms during the second half of the year.​

Environmental, Social, and Governance (“ESG”): During the first half of 2020, social activism became far more visible in our society, and the persistence of the pandemic suggests that this is not likely to go away quickly. This trend will likely affect investing as well, with a greater focus on ESG investing and companies that can responsibly address the needs of economic disruption across all sectors.​

Valuations: With compressed earnings and uncertainty driving the decoupling of valuations from the current economic climate, we expect buyers and sellers to navigate flexible and creative valuation methodologies and purchase price mechanisms (i.e. earn-outs and other metric-related measures) to bridge the value expectation gap and alleviate near-term risk for both parties.​

Globalization impact: Due to escalating trade tensions prior to COVID and a renewed focus on resilience of supply chain and intellectual property, there will be an emphasis on building resiliency to potential tightening of global trade and restrictive barriers to cross-border commerce.​

The second half of 2020 will be driven by the pace of the recovery and resilient players within key sectors of the economy who are well-positioned to address the needs of a shifting market landscape, and are seizing opportunities to strengthen strategic positions, build resiliency within their operations, and drive the innovation needs of their sectors and the broader market. PE firms will have a key seat at the table, and the choices they make in the pursuit of value creation could have a broader effect on our economy as a whole.​

About PwC’s Deals Practice​

Smart deal makers are perceptive enough to see value others have missed, flexible enough to adjust for the unexpected, aggressive enough to win favorable terms in a competitive environment, and circumspect enough to envision the challenges they will face from the moment the contract is signed. But in a business environment where information can quickly overwhelm, the smartest deal makers look to experienced advisors to help them fashion a deal that works.​

PwC’s Deals group can advise private equity firms on key M&A decisions, from identifying acquisition or divestiture candidates and performing detailed buy-side diligence, to developing strategies for capturing post-deal profits and exiting a deal through a sale, carve-out, or IPO. With more than 20,000 deals professionals working on over 5,500 transactions each year, we can deploy seasoned teams that combine deep sector skills with local market knowledge virtually anywhere and everywhere your company operates or executes transactions.​

Although every deal is unique, most will benefit from the broad experience we bring to delivering strategic M&A advice, due diligence, and transaction structuring, M&A tax, merger integration, valuation, and post-deal services.

In short, we offer integrated solutions, tailored to your particular deal situation and designed to help you extract peak value within your risk profile. Whether your focus is deploying capital through an acquisition or joint venture, raising capital through an IPO or private placement, or harvesting an investment through the divestiture process, we can help.​

For more information about M&A and related services to private equity, visit our homepage.

About the data​

The information presented in this report is an analysis of deals in the private equity industry where the target company and/or the target ultimate parent company was located in the United States of America. Deal information was sourced from PitchBook Data, Inc.​

Contact us

Manoj Mahenthiran

Manoj Mahenthiran

Private Equity Leader, PwC US

Puneet  Arora

Puneet Arora

Private Equity Tax Leader, PwC US

Eric  Janson

Eric Janson

Private Equity Advisory Leader, PwC US

Mark Watermasysk

Mark Watermasysk

Private Equity Assurance Leader, PwC US

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