Despite volatile valuations, travel restrictions and difficult trading conditions for portfolio companies, PE figures held up relatively well. There were 2,027 PE-related deals (including both exits and buyouts) worth US$459.8 billion in 2020. Although this represents an 8 percent year-onyear drop in volume, value remained steady and the overall declines for M&A were much bigger.

Moreover, the full-year figures mask PE’s strong performance in the second half of 2020. Total value of PE-related deals in H2 came to US$337.7 billion—a 177 percent increase compared to the first six months of the year, and an impressive 64 percent rise on H2 2019.

US $337.7 billion The value of US PE-related deals in H2 2020—a 64 percent increase compared to the same period in 2019

Exits to the rescue

Much of this heightened activity was due to large exit transactions. Of the top-ten largest PE-related transactions in 2020, eight were exits. In contrast, in 2019, only four of the top-ten PE deals were exits.

Exit value totaled US$244.6 billion in the second half of 2020, more than double the US$118.9 billion struck in the last six months of 2019. Volume over this period rose 3 percent to 573 deals.

Even including the tough first half, total exit value for the year as a whole reached US$314 billion, up 14 percent compared to 2019, although exit volume fell by 15 percent.

Buyout activity was more muted. There were 1,061 buyouts in 2020 as a whole, worth US$145.9 billion—a 1 percent drop in volume and a 21 percent drop in value compared to 2019. Total buyout value improved substantially in H2 compared to H1, however, rising 77 percent to US$93.1 billion, 7 percent higher than the figures for the second half of 2019.

Additionally, many of these buyouts were minority investments— the number of PE investments made in exchange for a stake of less than 50 percent rose 7 percent year-on-year to 532 deals in 2020. The total value of these deals came to US$99.4 billion, a 49 percent increase on the year before.

As businesses in certain sectors struggled in the face of the historic uncertainty unleashed by the COVID-19 pandemic, many turned to selling non-controlling stakes to raise cash—and the highly adaptable PE industry stepped up to provide capital at attractive valuation multiples.

TMT and healthcare stay attractive

Technology, media and telecoms (TMT) was far and away the largest sector for PE by both volume and value, with 769 deals worth US$217.6 billion—unsurprisingly, given that the technology sector has emerged as the biggest beneficiary of the pandemic.

Exits in the TMT sector were especially robust, totaling US$160.2 billion, more than triple the US$48.2 billion across 2019.

This was due primarily to activity at the top end of the market, as volume remained steady at 449 deals.

Buyouts in the TMT sector, on the other hand, dropped 28 percent year-on-year, to US$57.4 billion. As with exits, volume held steady at 320 over the same period.

The second-largest sector by value was healthcare (incorporating pharma, medical and biotech), which recorded 267 deals worth US$60.1 billion—a 17 percent rise in volume and a 30 percent increase in value compared to 2019.

The largest PE deal of the year embodied several of the trends discussed above: The US$14.8 billion sale of Livongo Health to Teladoc was an exit for investors Kleiner Perkins, General Catalyst Partners and 7wire Ventures. Livongo Health sits at the intersection of technology and healthcare as a digital health platform.

With routine healthcare appointments canceled or postponed due to concerns about COVID-19, telehealth solutions have become more attractive to consumers, but the pandemic has accelerated digital adoption in other segments as well. InterContinental Exchange’s acquisition of mortgage technology provider Ellie Mae, for instance, is symptomatic of digital transformation in an industry that still heavily relies on manual processes.

Looking ahead

The election of Joe Biden as president and the Democratic Party's control of both houses of Congress may lead to increases in corporate and capital gains tax rates, as well as stricter antitrust enforcement. But even if tax policy changes, it is unlikely to have a major impact on levels of PE activity. Taxation is rarely the primary motivator for a transaction and any changes to tax policy will be factored into valuations. And stricter antitrust enforcement may give sponsors a leg up in sale processes, although buy-and-build deals by their portfolio companies may face challenges.

As vaccines for COVID-19 are rolled out, enabling economies to reopen, PE firms may once again be more active on the buy-side. Greater stability and a better understanding of how companies are coping with the pandemic’s effects in 2021 will encourage greater activity, especially given the high level of capital at the industry's disposal—US$1.7 trillion in dry powder, according to data provider Preqin.