Pitchbook’s 2021 Private Equity Outlook

January 4, 2021

The 2020 experience was likely nothing any of us has every experienced. For the private equity (PE) industry, the story is no less interesting. With a usual year behind us, what does 2021 have on tap? Here’s a look at private equity data provider Pitchbook’s view of the coming year.

A Recording Breaking Year on Tap?

According to Pitchbook, private equity activity during 2020 slowed modestly. On tap of the 2020 pandemic-induced slowdown, Pitchbook sees PE fundraising to reach an all-time high of $330 billion in 2021.

Part of reason for this expectation is rising fund sizes, with the median fund size 50% larger than its predecessor.

Adding to the effect of larger fund sizes, fund managers have increasingly moved to offer more strategies under the PE umbrella. For instance, in 2019 Blackstone offered its first “growth equity platform”. This strategy, in theory, fills the void between traditional venture capital and leveraged buyouts.

Source: Pitchbook

Buyouts with 20x EBITDA?

Perhaps the most controversial of Pitchbook’s projections is that 20% of buyouts may be priced above 20% of EBITDA (earnings before income taxes and depreciation allowance). The prediction is not without some evidence in recent years.

The following looks at PE deal activity by enterprise value (EV) divided by EBITDA. Interestingly, in 2019 and 2020, the 20x EBITDA figure was almost reached, and if the trend continues, 2021 may the year in which more than 20% of all buyouts are 20x EBITDA or higher. Simply amazing.

Reasons behind the trend include rising price multiples in public and private markets and buyout funds increasingly paying attention to growth-stage technology companies. As an example, recently software investor Thoma Bravo acquired cybersecurity firm Sophos for 46x TTM EBITDA, an amazingly high figure even for a technology firm.

Source: Pitchbook

Could there be 20 or more PE-backed companies entering US public markets through a reverse merger in 2021?

Another interesting prediction from Pitchbook is their view that 20 or more PE-backed companies will enter the public US markets through a reverse merger using an SPAC (special-purpose acquisition companies).

As evidence, Pitchbook notes that more than 200 SPACs were launched in 2020 searching for deals to complete before the typical two-year period runs out when they must return their capital to shareholders.

Source: Pitchbook

Summing Up

Overall, according to Pitchbook, the 2021 year will be a bright one for private equity. Fundraising activity, pay, and other measures of PE activity may surpass all-time highs in 2021. Let the good times roll for private equity.

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