What are the top priorities of private equity managers in 2020? Although the priorities may change by the minute, Lincoln International is out with a fascinating look at what private equity managers consider as their top priorities this year.
Before looking, take a guess. Which priority would you guess comes in on top? Would it be delaying investments because of a concern about a pending recession? Would it be finding a good exit before a recession materializes?
Here are the results.
Top Priority of Private Equity Mangers
Perhaps the most interesting finding of the report is the percentage of respondents that gave this as their top priority. The top priority of private equity managers is deploying capital. A whopping 79% of respondent placed this as their top priority.
Far behind, in second, third, and fourth places, were investing in innovation (7%), completing exists (5%), and preparing for a downturn (1%).
Anyone surprised by the 79% figure? One would think that with a higher likelihood of a recession in 2020, more fund managers would place greater emphasis on completing exits before a recession occurs or preparing for a downturn. The confidence private equity managers have in the future of the 2020 economy is always euphoric.
Valuations
One of the most important metrics in managing private equity money is valuations. Before looking, would you guess that private equity mangers see valuations going up or down in 2020?
Curiously, given that private equity managers tend to be the zealously overoptimistic type, the respondents to the survey were staider. As a group, a large majority of respondents thought 2020 would see staid valuations in 2020.
This finding isn’t all that surprising given that recent trends on valuations have been such. In the first quarter of 2019, the EV/EBITDA multiple was 12.3x. That measure didn’t change in the second quarter and dropped slightly in the third quarter to 11.9x. The other Pitchbook reported measures – Debt/EBITDA, Equity/EBITDA, and Debt Percent – were also relatively stable through the first three quarters of 2019.
Top Sectors
What about the top sectors attracting investment in 2020? Which sectors would you guess would attract the most excitement from private equity?
Interestingly, although completely unsurprising, the recession resilient industries appear to be the top attractor of private equity capital in 2020. According to the data published by Lincoln International, Business Services, TMT, and Healthcare appear to be well-liked by private equity managers in 2020.
The subsectors of these broad sectors include;
- Business Services: Professional Services (48%), Commercial Business (45%), and Industrial Services (41%).
- TMT: Data and Analytics Management (43%), Application Software (43%), and Education Technology (35%).
- Healthcare: Healthcare IT (38%), Provider Services (34%), and Payor/Payor services (24%).
Conclusion
In a fascinating look at the private equity manager universe, the top priority of private equity mangers in 2020 ism deploying capital. Amazingly, a whopping 79% of respondents placed this as their top priority. Other interesting results on the minds of private equity managers appeared in the survey results.
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