Menu
The Private Equity Global Outlook 2020 report produced by Private Equity Wire and RFA outlines the macro picture of the industry for 2020. Interviews with industry professionals look at the fundraising environment, global deal outlook and allocation trends, as well as ESG and sustainable finance.
Here’s our summary of the report’s 10 key global predictions for the industry.
1. Value Added Partners
Businesses will be seeking more than just capital in 2020, they want a value added partner. Private Equity firms will need to innovate their approach to investment opportunities.
2. Correcting valuation multiples
Credit underwriting standards have largely declined over the last few years, meaning that highly adjusted and ‘pro-forma’ EBITDA figures have been a tailwind for returns. A correction in valuation multiples would expose the PE firms that have posted good returns, despite having underacheiving companies in their portfolio.
3. A robust year ahead
While 2020 is predicted to be a “robust year with substantial sums raised”, it is likely that there will be a fall in funds raised relative to the 2019 figures, continuing the trend of political and economic volatility over recent years.
4. An ever more competitive fundraising environment
2019 saw record numbers of first-time funds enter the market and established general partners (GPs) return to the market faster than expected. The ‘two-lane’ pattern (fast cap closing compared with slow, tenacious and resilient closing) is set to continue into 2020.
5. Favourable market conditions
Budgets for portfolio companies are in good shape and entrepreneurial businesses seeking succession or growth partners is strong. However, sponsored lending managers may see a slowdown in fundraising volume, with more capital being allocated to speciality finance managers with strong asset protection.
6. The UK market should see an upturn
Now that the general election has resolved some economic and political uncertainty, there should be an upturn in the UK M&A activity.
7. Divestiture of non-core assets will continue
Both private and listed companies will continue to divest it’s non-core assets, enabling management teams to focus on the core operations. For listed companies, this also means that the market is valuing the business more realistically.
8. Polarisation of pricing
As the macro-economic environment toughens, the highest quality businesses will have strong valuations in 2020, driven by robust demand and scarcity of assets. In contrast, a softening of valuations will continue for assets that are not in the ‘top quality’ class.
9. Secondary market set for more record growth
The secondary market has grown ten-fold in the last decade, and GP-led transaction deals represent the fastest growing subset of the market. It’s expected that more Limited Partners (LPs) will invest in the secondary market in 2020 based on its attractive characteristics.
10. Investors will continue to prioritse ESG factors
Environmental, social and corporate governance (ESG) became mainstream for PE investors in 2019 and is set to continue to be a priority in 2020. It’s likely that investors will push for a greater availability of ESG data and metrics when entering into investment decision-making.
Catch up on the latest financial news and opinions from like-minded contributors plus interviews with influential industry figures.
