Private equity deals poised for trillion-dollar year

As PE firms have gotten more sophisticated, they’ve deployed more capital than ever before, despite what remains a complex pandemic environment, says EY’s PE analyst.

With announced private equity deals surpassing $580 billion-plus in combined value in H1 2021 – a new six-month-period record – the industry is racing towards what is likely to mark its first-ever trillion-dollar year, according to EY’s Global PE Pulse study.

Availability of financing and dry powder is fueling robust levels of activity along with the industry’s ability to leverage more resources than ever before, according to Pete Witte, EY global private equity lead analyst.

Based on the six months ended June, 2021 is on track to beat the highs seen in 2006 and 2007, when PE transactions accounted for over $750 billion in value each year. The difference today, Witte said: there’s a more developed, sophisticated ecosystem of operational resources.

“In [2006 to 2007], PE firms didn’t have the huge consulting arms,” Witte said. “That’s one of the things enabling PE firms to have a much more accurate read of the prospects [now].”

“They have the resources to put to use when times get difficult, that’s what we saw last year,” Witte continued.

The record level of overall transaction value comes as competition for deals remains fierce following a period in which portfolio companies experienced varying covid-related impacts – making the due diligence process that much more difficult.

That has added an additional layer of complexity, Witte said. “As a PE firm, you need to understand what this [covid] pull-forward means… what’s the demand curve.”

The tech, healthcare and insurance industries have supported record levels of activity. For example, in June, Blackstone Group, The Carlyle Group and Hellman & Friedman jointly acquired family-owned healthcare products distributor Medline Industries in a deal valued at $34 billion, representing the second-largest buyout in history, according to EY.

In recent large scale activity in insurance, Blackstone last week paid $2.2 billion for a 9.9 percent share in life insurance company AIG, pushing the firm’s AUM to approximately $150 billion by the end of this year. Earlier this month, Thoma Bravo acquired e-commerce shipping software firm in a take-private deal for $6.6 billion.

Buoyed by robust deal values and price multiples, PE now accounts for 29 percent of overall M&A activity globally – another all-time high. “Barring some kind of additional leg of the pandemic…conditions are right for a trillion-dollar market,” Witte said.