Global PE activity has gone from strength to strength in 2021, with total value in Q2 overtaking the previous record high achieved in the first quarter of 2021.
The value of PE deals reached US$571.6 billion in Q2 2021—an 18% rise compared to the previous quarter and a new quarterly high for Mergermarket record (since 2006). The number of deals dropped by 9% (to 1,763) compared to the prior quarter—but this still represents an 90% year-on-year increase compared to Q2 2020.
Buyout activity has been a particular highlight. With US$418.4 billion in deals announced, Q2 inked the highest quarterly deal value on Mergermarket record, overtaking the US$363.9 billion achieved in Q2 2007. A deal volume of 1,157, meanwhile, represents a 15% drop compared to Q1’s record activity, thanks to the predominance of big-ticket transactions.
SPAC boom powers TMT
The technology, media and telecoms (TMT) sector attracted the largest deal value and volume across all sectors, with 674 deals worth US$194.1 billion announced. This represented a slight drop in volume on the previous quarter’s 700 deals, but an uptick of 3% in value.
The largest TMT PE deal in Q2 was the acquisition of ride-hailing firm Grab by US-based SPAC Altimeter Growth. The US$34.7 billion deal saw PIPE investment from a number of investors, including BlackRock, Counterpoint Global and T. Rowe Price.
SPACs are gaining popularity among global PE funds as an efficient tool to deliver value. As a coinvestment vehicle, they enable sponsors to do side-by-side transactions with less leverage and more equity than traditional deals. The unique deal type also empowers sponsors to pursue larger transactions than they might be able to close without the advantages a SPAC brings to the deal.
US software deals ramp up
The software deal market was another high point for TMT activity, particularly within the US. Notable deals include US PE firm Thoma Bravo’s acquisition of California-based cybersecurity firm Proofpoint. The take-private deal, valued at US$11.3 billion, is among the largest private equity-backed software buyouts on record.
Cybersecurity has become an urgent priority for businesses following a rise in ransom attacks—where cybercriminals encrypt a company’s data and demand a fee to decrypt it—during the COVID pandemic. An increase in remote and flexible working is further exposing vulnerabilities to cyber crime.
Another significant software buyout of a California-based firm was Clayton, Dubilier & Rice and KKR’s US$5.4 billion take-private bid for cloud-based data analytics firm Cloudera. Demand for cloud services is set to increase over the coming year, fueled by the need for off-premises services amid the pandemic recovery. According to Gartner, worldwide end-user spending on public cloud services is forecast to grow 18.4% in 2021, reaching US$304.9 billion.
PMB produces big-ticket deals
The pharma, medical and biotech (PMB) sector also delivered an impressive performance in the second quarter. A total of US$114.6 billion in announced deals posted a massive 195% quarter-on-quarter rise, while volume dropped from 218 to 201 deals over the same period.
The largest deal in the sector was the US$34 billion acquisition of an undisclosed majority stake in Medline Industries, a manufacturer of medical supplies, by The Carlyle Group, Hellman & Friedman, Blackstone and GIC.
The Illinois-based, family-owned Medline, which secured US$17.5 billion in revenue last year, plans to use the investment to expand its product offerings and its international business. The transaction, which is reportedly the largest LBO since the 2008 financial crisis, highlights the trend of major global PE players with cash to spare pooling their funds together.
Biotech assets were also in high demand during the second quarter, producing some big-ticket exit transactions. The largest of these was US PE firm Hellman & Friedman’s US$21 billion sale of drug testing company PPD to Thermo Fisher Scientific, a US-based manufacturer of analytical instruments. Contract research organizations (CROs), such as PPD, look set to benefit from an increased focus on treatments and preventative measures for potential future health crises.
There are several positive forces set to drive global PE activity over the second half of the year. Global PE funds have a record level of cash to spend—an estimated US$1.6 trillion as of Q1 2021, according to research firm Preqin—which will sustain momentum in the market.
This record level of funding is supported by a brightening macroeconomic outlook. The global economy is set to grow 6% in 2021, following 2020’s contraction of 3.3%, according to the IMF. The US outlook is particularly positive, with GDP forecast to grow 6.4% over the course of the year.
PE players are not shying away from larger deals, and are comfortable teaming up with other players in the market—either through club deals or SPACs—to ensure that the deal gets done. This trend will serve to push up price tags even further.
With these tailwinds behind it, global private equity activity could be on track for a record second half of 2021.