After weathering an uncertain 2020, Private Equity (PE) is back with vigour and making up for lost time across the PE funding cycle - with historic highs in fundraising and returns.
Deal activity following the COVID-19 pandemic is remarkably reminiscent of the post-Global Financial Crisis period, with the PE sector capitalising on a myriad of opportunities as the economy rebounded strongly. COVID-19 was a catalyst for PE firms and corporates alike to consider their strategic direction, allowing for continued dry powder accumulation.
Deal activity has been driven by COVID-19, enabling PE firms to take advantage of companies that benefited from the acceleration of consumer focussed and e-commerce trends, and those negatively impacted with depressed valuations. Notably in FY21, Australian PE firm, BGH Capital has taken a growth outlook on distressed industries that had their earnings and valuations depressed, such as travel & leisure with the acquisition of theme park operator, Village Roadshow, online travel agent, Tripadeal, as well as the unsuccessful bid for Virgin Australia Airlines (in FY20).
Overall, PE performed exceptionally well in FY21 – with PE returns outperforming most asset classes. FY21 saw PE harness the macroeconomic environment supported by record low interest rates, and target sectors such as Technology, Media and Telecommunications (TMT), Business Services and Consumer.
As we look forward to the next year, we can expect PE funds to further deploy their dry powder, with the merger and acquisition activity pipeline heightened and technology-enabled ideas continuing to garner support by investors and governments.