PSPCs Could Slow Down, But They’ve Left Their Mark on the Value of Private Equity Transactions
The value of private equity deals in the first quarter doubled compared to the same period last year – before the worst of the impact of Covid-19 – and reached levels last seen before the financial crisis global, according to a report released Thursday by Ernst & Young. . The value of global transactions reached $ 261 billion in the first quarter.
The value of transactions in the Asia-Pacific region grew 172%, although the absolute number of transactions was essentially stable year over year. Technology companies have been at the center of many transactions. Technology has accounted for 26% of global transactions and 34% in the United States over the past 12 months, according to EY.
As the pandemic weakens and the economy strengthens, at least in the United States and Asia, investors have been better able to assess companies and position them for an expected rebound in the economy, according to Pete Witte, senior global private equity analyst at EY.
“When we got back to the office on January 4 at 9 am, the phones were ringing. It was unlike anything we had ever seen, ”Witte said in an interview.
“A lot of deals were postponed last year – maybe they couldn’t get funding or get past initial talks. But these agreements are currently under development. ”
Ernst & Young expects deal value to appreciate, on a percentage basis, even more dramatically in the second quarter.
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Even as the flow of new special purpose acquisition companies has slowed, Witte said PSPCs are transforming the private equity market.
On the one hand, about 10 to 15 percent of PSPCs are sponsored by private equity firms themselves. Investors are concerned about potential conflicts of interest between PSPCs and the private equity funds themselves. PE-backed PSPCs have raised $ 25 billion in the past 12 months. GPs are experimenting with ways to share the economics of PSPCs with SQs. Witte said that a private equity firm, for example, placed its PSPC in the main fund and treated it as a holding company so that LPs could benefit from it.
Other models of economic sharing will emerge over time and PE companies will need to be fully transparent with investors about potential conflicts and how they deal with them.
The amount of money collected by PSPCs creates a competitive frenzy for offers and inflates prices. Witte estimated that even if no other PSPC came on the market, these vehicles could potentially make investments valued between $ 700 billion and $ 800 billion this year. His estimates are based on what has been raised to date by blank check companies. At the same time, private equity has the power to close deals of $ 500 billion a year on average.
“There is a huge surplus of capital coming from a new source, and it is going to be difficult for private equity firms and PSPCs to find attractive assets and pay the right price,” he said. .