In an interesting look at what lies ahead, Deloitte, in cooperation with private equity data provider Pitchbook, released a look at the “Road to Next”. A review follows.
Where we are now
Before diving into the post-pandemic investing world, where are we now? The following has the deal value and deal count for expansion stage private equity (PE) and venture capital activity (VC) by quarter since the first quarter of 2006.
Clearly, deal activity and deal volume has not been too pretty during the third quarter of 2020.
Certainly, deal volume is down, to lows not seen since 2009. But, with that low acknowledged, private markets are still awash with capital and are still “plying expansion-stage companies with capital.”
The Four Themes in a Post-Pandemic World
Deloitte identified four themes in their analysis of the Pitchbook data.
Antifragility
The first theme potentially on tap is antifragility. What is antifragility? Antifragility refers to the amazing ability for expansion-stage companies to whether the pandemic storm – generally better than their publicly-traded counterparts.
The question now is whether these companies can move beyond resilience towards antifragility. It’s a risky proposition, but all indications suggest that that is exactly what could be on the horizon for bold PE and VC stage companies.
Consolidation
The second theme emerging on the post-pandemic investing world is consolidation. It is an often-undiscussed phenomenon – companies are “consolidating across the expansion stage, albeit at a lesser rate given their relative age.”
Perhaps surprisingly, the median pre-money valuation of expansion companies is $124 million. At such a valuation, expansion companies have the scale to acquire smaller companies much earlier in their lifecycle, and thereby increasing their market position to the potential investor and to the market overall.
Diversification
The third theme coursing through the analysis is diversification.
In the post-pandemic world, investors will likely have a heavy appetite for expansion stage companies. Unsurprisingly, many of those investments will come from nontraditional investors, which might include and hedge funds and sovereign wealth funds looking to diversity their exposures.
The fourth theme summing up Deloitte and Pitchbook’s analysis is opportunism. According to the authors, the Covid-19 pandemic has “exposed the need for more robust communication tools, cybersecurity infrastructure, and access-variable logistics.”
Opportunism
The world may be different in a post-pandemic experience – some businesses will flourish; others will need to adapt.
Summing Up
In a fascinating review of what the post-pandemic world may look like, Deloitte, with the cooperation of Pitchbook, identified four running themes likely to materialize in the coming years. As the famous Zig Ziglar saying goes: “Success occurs when opportunity meets preparation.”
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