After a year of upheaval, private equity and venture capital dealmaking ended last year on a strong note in the European Union and the U.K., and that momentum is poised to continue.
The strong momentum from the end of last year is poised to continue.
Consider where the industry stood at the beginning of 2020. After the Conservative Party’s decisive victory in late 2019 and the promise of a deal on Brexit, private equity dealmaking in the U.K. last year started strong.
Private equity dry powder in the U.K. at the time stood at 128 billion euros, or $156.6 billion, and in the EU it was 294 billion euros, or $359.6 billion, according to PitchBook.
But then the pandemic hit, and deal activity plunged in subsequent months. In the second quarter of last year, the U.K. and EU saw a dip in total deal value of 48% and 40%, respectively, from the previous quarter.
Deal count was also depressed. By June, as coronavirus cases raged across the continent, total deal count in the U.K. had fallen by 52% from the previous quarter and by 34% in the EU.
Decisive government actions to curb the pandemic and a combination of fiscal and monetary policy helped lift activity in the second half for both the EU and U.K. At the same time, the industry learned to adapt, performing due diligence online and executing deals using video conferencing tools.
The result was a year that showed the private equity industry’s ability to bounce back. The U.K. ended with 1,170 private equity deals with a value of 126 billion euros, or $154 billion – a 3% increase in deal flow and a 2% drop in deal count from 2019.
The EU fared similarly; it ended last year with 449 billion euros, or $549 billion, of total deal flow across 4,179 transactions – only a 3% drop in deal value and a 2% drop in deal count from 2019. And deals between 100 billion and 500 billion euros, or $122 billion and $611 billion, represented 45% of all deal value in the EU.
Amid all this uncertainty, the U.K. remains a bulwark, consistently garnering 27% of all private equity deal flow since 2018.
It’s a similar story with venture capital, which reached new heights last year and is poised to remain a darling to investors seeking better returns at a time when zero and negative interest rates are the norm.
Venture capital deal value in the EU last year topped 43 billion euros, or $52.6 billion, across 9,341 deals, surpassing the record for both deal value and deal count in 2019. By deal size, investments over 25 billion euros, or $30.6 billion, made up 62% of total venture capital investment.
Historically low interest rates, record amounts of dry powder and ample distressed assets all play well for private equity and venture capital in the long term as investors search for better returns.
In the end, the industry’s turnaround is an example of how distressed companies often look to private equity and venture capital firms for their financing and expertise during economic downturns.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.