In line with overall M&A trends, global private equity had a blockbuster 2021 by any metric, but perhaps the best is this: In a record-setting year for global M&A, a record was also set for the percentage of M&A deals that were PE deals. PE buyouts comprised 27% of global M&A activity in 2021, the highest percentage on Mergermarket record (since 2006), nearly four times 2009’s low of 7% and a 35% leap from 2020’s 20%.

With a total of 8,548 deals worth US$2.1 trillion announced, global PE activity in 2021 nearly doubled the previous record set in 2007 (US$1.1 trillion), and more than doubled 2020’s US$1 trillion. Deal volume posted an impressive 60% increase year-on-year.

Buyouts enter a golden era

Buyout deal activity was the driving force behind this strong performance. PE houses continue to spend at an unprecedented rate as they look to invest cash accumulated during the pandemic. As a result, buyout deal value (including both primary and secondary buyouts) finished the year on an all-time high of US$1.5 trillion—1.8 times 2007’s pre-crisis record.

Reflecting the dominance of this deal type, all but one of the top ten PE transactions of the year were buyouts (both primary and secondary)—the highest being US buyout group KKR’s proposed takeover of Telecom Italia (TIM), valued at US$40 billion.

The year was exceptionally active for primary buyouts—there was an astonishing US$1.2 trillion worth of these deals in 2021, a clear indication that the PE industry retains the ability to find attractive targets that are not already in the PE ecosystem.

TMT reaches new heights

The technology, media, and telecom (TMT) sector continued to dominate activity, both in terms of value and volume. Total PE deal value in the sector reached US$784.2 billion—nearly double the US$404 billion total in 2020, the previous top year on Mergermarket record.

Deal volume, meanwhile, has posted ten consecutive annual increases since 2012. Activity shot up from 2020’s previous record of 1,845 deals to reach 3,268 in 2021.

The largest of these was the aforementioned TIM offer. The takeover offer for Italy’s largest telecommunication firm is conditional on support from both TIM and the Italian government, along with a four-week due diligence process. If the deal gets the green light, it will be one of the largest buyouts of a European company in history.

The second-largest deal involved Singaporean “super app” Grab’s US$37.8 billion merger with Altimeter Growth Corp, a SPAC backed by private equity firm Altimeter Capital. The deal is reflective of how PE firms have participated in the SPAC boom over the past 18 months.

Healthcare buyouts ramp up

The healthcare industry has witnessed a boom in PE deals as rival firms increasingly join forces to win prize assets. Total PE value in the sector rose by 109% year on year, to US$247 billion. Volume increased by 47% over the same period to 912 transactions.

The largest transaction in the sector was the US$34 billion acquisition of US-based medical supply firm Medline by a consortium led by Carlyle. The transaction was not only the largest PE deal in the pharma, medical and biotech (PMB) sector of 2021, it was the largest transaction in the sector overall that year.

Another notable healthcare PE deal to take place in 2021 was Thermo Fisher Scientific’s acquisition of US-based PPD. The exit for US PE firm Hellman & Friedman, valued at US$21 billion, was the largest to target a contract research organization (CRO) this year, as these businesses become hot properties due to a surge in demand for clinical trials amid the pandemic.

Exit activity sets new record

Although buyouts took much of the oxygen in the room in 2021, exit activity was by no means subdued.

In addition to the 984 “PE to PE” deals (or secondary buyouts) which took place in 2021, worth a total of US$309.4 billion, there were 2,343 exits to trade buyers across the year—a 52% increase on the previous year. The total value of exits to trade buyers rose by 53% year on year to reach US$592.8 billion, overtaking 2018’s US$430.3 billion as the highest annual total on record.

Outlook

The record levels of PE activity seen in 2021 would have impressed even the most optimistic of market predictions for 2021, with previous records broken across numerous sectors and geographies.

With global PE houses sitting on an estimated US$2.3 trillion of cash reserves, the stage is set for this unprecedented level of activity to continue into 2022. This figure has increased from US$1.6 trillion in 2019, before the impact of the pandemic was felt, highlighting the sheer scale of PE firms’ current buying power, under pressure from institutional investors to deliver strong returns.

From health-tech to telecoms, the pandemic added fuel to the fire of existing trends and revealed the extent of the potential for investment, especially in digitalization. PE firms will continue to seize opportunities as they look to gain first advantage in high-growth areas. Expect more PE firms to join forces in order to achieve the scale and financial clout needed to secure increasingly sizable deals.

Increasingly positive economic conditions such as a brightening global economic outlook, seller-favorable valuations and low interest rates are injecting confidence into the market. While interest rates are expected to rise in 2022, they will likely remain low by historical standards.

Buoyed by these underlying drivers in the market, global private equity dealmaking might continue its bull run into 2022.