The Private Equity Market in Times of Crisis: Rapid Recovery and a Favourable Outlook

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Présentation


The COVID-19 pandemic had a major impact on the German M&A landscape in 2020. In mid-March 2020, the market suddenly stagnated. After the lockdown in the second quarter of 2020, however, the private equity market recovered incredibly quickly, despite the omnipresent pandemic.

Since mid-2020, the number of transactions has increased significantly. According to an analysis by Ernst & Young, the number of private equity transactions in the second half of 2020 amounted to 127, 33 more than in the first six months of the year. Total deal value in 2020 was EUR 34.6 billion, higher than the 2019 total of EUR 32.2 billion. Private equity investors were mainly involved in small and medium-sized transactions. A PwC overview of the top 10 announced deals by foreign investors in German targets clearly shows that private equity transactions dominated in 2020.

During the COVID-19 pandemic, the information technology sector was particularly important for transactions, followed closely by the industrial sector. The healthcare market also gained prominence. Declines were clearly evident in the automotive sector. Nevertheless, connectivity, autonomous driving and electro mobility continue to be important, irrespective of the pandemic.

Positive Developments to Be Expected

Although the pandemic has not yet ended, the private equity market likely will continue to develop positively. The demand for alternative asset classes has increased even more, and a large amount of investment capital is available in the market. Private equity investors usually benefit in crisis years, as they can advance companies on favourable conditions. The persistent low interest rate environment of the central banks is advantageous for private equity investors. Robust deal activity is to be expected particularly in the technology and healthcare sectors. It is also possible that companies under private equity ownership will go public, which promises success due to record share prices.

It remains to be seen whether the distressed M&A market will increase from 2021. Such a development may be delayed as a result of the temporary suspension of the obligation to file an insolvency application according to the German act to mitigate the consequences of the COVID-19 pandemic.

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