Download the Second Quarter 2020 Private Equity Update here.
As the impact of the COVID-19 pandemic dragged into the second quarter, there was a noticeable effect on private equity deal-making. The volume of buyouts and exits (instances in which a private equity investor exits their investment) fell sharply with a 44% decline quarter over quarter, and fundraising was also off from 2019 highs.
An estimated $144 billion was invested across roughly 785 deals nationwide. Unfortunately, Midwest activity declined faster than the national trend after logging a 73% decrease in deal counts for the quarter. This is a nine-year low for the six state Midwest region.
While the second quarter was less than ideal, it appears activity is picking up with economies reopening: jobs are being added, the unemployment rate is lowering, and the rise in public markets may carry over to private capital markets activity. However, some economic measures are still far worse than before the crisis and the progression of the economy is currently largely affixed to fiscal stimulus (and we are cautious that lapsing stimulus and investor pressure for returns may lead companies to not bring back furloughed employees). Any scaling back of reopening efforts will adversely affect capital markets activity.
We generally expect activity to pick up in the third quarter, though we remain cautious. Investors still have plenty of capital to invest, fundraising is still strong, and it’s a competitive market to put capital to use, resulting in higher valuations. Despite the decrease in the volume of deals during the quarter, valuations increased as investors focused on fewer high-quality deals.
As always, contact us if you would like to discuss strategic options or activity in your particular industry.