The COVID-19 pandemic disrupted many aspects of the market in 2020, and private equity firms across all landscapes have been at the forefront of the changing environment. Deal volume, deal size, and fundraising all declined in aggregate in 2020. According to PitchBook’s 2020 Annual US PE Breakdown, “PE deal activity saw 5,309 deals close for a combined $708.4 billion – YoY dips of 3.4% and 7.3%, respectively.”

Much of this disruption has been witnessed within the middle market. Rookie and sophomore funds have struggled to raise new capital due to the lack of in-person due diligence, which has tended to favor the fund managers with more established relationships. However, many middle market firms have shifted to, or further focused on, add-on acquisitions, which “accounted for 72.5% of all buyouts, an all-time high” in 2020 (PitchBook 2020 Annual US PE Breakdown). This is a sensible strategy in the COVID-19 environment due to the smaller transaction sizes and decreased risk relative to new platform acquisitions.

Looking to the future, 2021 has some positive catalysts. We anticipate deal activity to increase, in part, due to a build-up of postponed transactions from 2020. We also expect total funds raised to surpass 2019 levels, assisted by a high volume of first-time funds coming to market. Much of the increase in private equity deal activity can be attributed to tightening yield spreads. Investors will look to alternative investments to capture alpha in this environment. Investors and economists expect current monetary conditions to persist through 2021.

At Normandy Advisors, we see an opportunity to build stronger platforms for our clients through add-ons in 2021. We have significant experience helping our clients grow their existing portfolio companies through M&A and are well positioned to work in this increasingly competitive market.

To learn more about how we work with private equity firms and strategic buyers, check out this page.