By Jean Francois Alandry Patricia Larsen, in Barcelona 5th November 2021
All those, who like us, have recently visited the 2021 IPEM event in Paris, will confirm that for sure 2021 will be a record year when it comes to Private Equity activity Apart from the growth trend of this industry, the combined key factors that explains this exceptional year are the huge liquidity raised in 2018 2019 and the inability to properly invest in 2020 during the pandemic outbreak It seems to be that the PE industry will keep on beating records in 2022 due to the increasing percentage it will represent in LP’s portfolios.
Most of this huge liquidity is invested in the sectors that have been less or not affected by COVID such as Technology, Digital Economy, Health, Food, Logistics, Renewable Energies, Local Industry etc and much less in sectors facing deep structural changes to survive the post pandemic world The combination of an increased liquidity and a reduced number of sectors to invest in, has caused an important increase in valuations and the structural need of industrial experts in the PEs teams in order to better understand how the pandemic has affected the economy and the future of each sector.
The increasing need for geographical diversification and consequently reduced exposure to a single market has raised the appetite for companies with high international growth potential On another hand, and due to the need to find new and in principle cheaper segments to invest in, PEs consider now (through new specific funds) to invest directly in SMEs segment, a still relatively less competitive market, and to dedicate much more time to find add ons for portfolio companies Another interesting post COVID trend is that the PEs tend to invest more alongside the entrepreneurs during those challenging times, increasing short majority and minority deals in order to retain the founding entrepreneurs in the capital.
One thing we can conclude is that the relationships between M&As and PEs, have clearly been reinforced due to the everyday more complex sourcing of quality deals in promising sectors and the need for an increased proximity to the entrepreneurs.