PitchBook released its 2021 US Private Equity Outlook, which details predictions for private equity (PE) activity and performance in 2021. This past year defied expectations for most investors and PE managers were no exception. Dealmaking nearly ground to a halt in March but has since recovered rather quickly. Fundraising is on track for another strong year, although emerging managers have had a difficult time in a virtual environment. Exits have also slowed, but there are potential bright spots in the IPO market. Despite the widespread business disruption caused by the pandemic, private market transactions multiples have remained stubbornly high. Heading into 2021, there is ongoing uncertainty from the coronavirus pandemic as lockdowns persist in parts of the world and widespread vaccine distribution will take time. Nevertheless, PitchBook analysts predict fundraising will surpass the $316.9 billion high-water mark set in 2019 as institutional investors allocate more to PE.

“Although there are still many unknowns and lingering disruptions from COVID-19, we believe 2021 will be a record year for PE fundraising,” said Dylan Cox, Lead Private Equity at PitchBook. “Private markets rebounded faster than expected this year, signaling that institutional investors’ decade-long pivot toward alternatives will remain intact in 2021. The healthy fundraising environment, adding to the existing $1 trillion in dry powder, will prompt GPs to write larger checks and encourage novel structures such as SPACs and GP stakes. Of course, the biggest question remains the evolving threat of the pandemic, which could cause some investors to conserve cash or dampen appetite for risk.”

Click here to download the full report and see in-depth data and analyst rationale behind each of the predictions below.

PitchBook 2021 Private Equity Outlook

• PE Fundraising will surpass $330 billion, setting an all-time high.
  
  • US PE fundraising is on track to slow modestly in 2020, doubtlessly dampened by the pandemic, but we expect it to rebound next year as institutional investors increase allocations to alternatives and GPs offer additional strategies that fall under the PE umbrella.   

• 20% of buyouts will be priced above 20x EBITDA.
  
  • Although debt/EBITDA multiples have been slightly lower this year, we expect the use of leverage in 2021 to be propelled by low interest rates, strong demand for high-yield debt, and a surfeit of dry powder in direct lending funds.

• At least 10 PE-backed companies will enter US public markets through a reverse merger with a special-purpose acquisition company (SPAC).
  
  • As PE firms become more comfortable with SPACs and the quality of SPAC sponsors rises, PE firms will look to this option with increased frequency. Over 200 SPACs launched in 2020, including several by PE firms themselves, more than tripling the year prior.   

• There will be at least one new type of exit from a GP stakes portfolio in 2021.
  
  • Pricing in the GP stakes market remains competitive, and the specialized PE firms will be looking to capitalize on whatever is available to achieve the best outcome for fund investors. A lift in pricing, whether it be through a strip sale, securitization, portfolio IPO, or something else, will help with future fundraising efforts and potentially bring in more LPs.   

• Carveout deal value will hit the highest level on record.
  
  • While many large companies are struggling, PE firms have seen dry powder mount throughout the crisis as traditional LBO activity diminished but fundraising remained healthy. PE firms are now seeking massive transactions to swiftly spend down this cash pile.   

• First-time fundraising in the US will be the strongest since the GFC.
  
  • The lack of in-person due diligence has put PE firms without existing LP relationships at a disadvantage. However, many LPs are reprioritizing adding new GPs as 2021 approaches, which will help lead to a healthy first-time fundraising environment.

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