Global private equity activity continued its winning streak in the first quarter of 2021, building on the dramatic return to form witnessed in Q4 2020. PE dealmakers conducted a total of 1,671 deals valued at US$360.3 billion in the first quarter—a more than twofold jump in value year on year, while volume rose 28%. This represents the highest total value in any quarter since Q2 of 2007.
Q1’s healthy activity was fueled by a steep increase in exit value in the first quarter as confidence continues to grow in the market after the challenges posed by COVID-19 in 2020. A total of 711 deals worth US$214 billion in Q1 represented a 128% year-on-year value increase, while volume rose by a healthy 34%.
Buyout activity also displayed a strong start to the year. Value reached US$296.6 billion in the first quarter—up 110% compared to Q1 2020. Volume rose 27% over the same period to 1,157 deals.
Software deals drive TMT activity
The technology, media, and telecom (TMT) sector was the most active in the first quarter—in terms of both value and volume—as demand soared amid the pandemic. A total of 597 deals worth US$171.1 billion were announced within the sector in Q1—more than doubling Q1 2020’s value of US$66.4 billion—while volume increased by 34%.
The software sector attracted some significant deals, with three out of the top ten private equity deals of the quarter targeting the industry.
The largest of these deals—and of the quarter overall—was an exit deal: Blackstone’s sale of US-based healthcare analytics firm Change Healthcare to UnitedHealth Group’s data analytics subsidiary OptumInsight for US$12.6 billion. The acquisition aims to strengthen the insurer's portfolio of healthcare technology services, with a focus on software and data analytics, technology-enabled services and research, advisory and revenue cycle management offerings.
Another one of the most significant PE deals of the year so far was again an exit in the software sector, albeit a less traditional one. Israeli app-monetization platform IronSource announced it would go public via merger with Thoma Bravo Advantage, a special purpose acquisition company (SPAC) backed by US PE firm Thoma Bravo. The deal will represent an exit for IronSource’s venture capital investors, including CVC Capital Partners and Saban Ventures, among others.
The growing popularity of SPACs was a standout M&A trend of 2020. As an alternative route to public markets, SPACs are attracting increasing attention from PE firms and private companies alike.
The IronSource transaction is illustrative of the varying ways in which the VC and PE industry can take advantage of the SPAC trend. Not only was the transaction backed by a PE firm and the deal an exit opportunity for the company’s VC investors, but the transaction will also see PIPE (private investment in public equity) from a number of private capital firms, including Tiger Global, Wellington Management and Morgan Stanley’s Counterpoint Global Fund.
US PE posts new record
Continuing its impressive recovery from the second half of 2020, US PE activity delivered an astounding start to the year. A total of 713 deals valued at US$239.4 billion were announced in the first quarter, more than doubling Q1 2020’s value of US$81.6 billion to reach the highest Q1 value on record. US firms attracted half of the top ten PE deals of the first quarter.
Atop its sale of Change Healthcare within the software sector, Blackstone took part in another top-five deal of the year, teaming up with US investment firm Starwood Capital Group to acquire a 92.85% stake in US apartment hotel chain Extended Stay and its lodging trust subsidiary, ESH Hospitality.
Expected to close in Q2, the deal has been cited as the largest hotel acquisition to take place so far since the start of the COVID-19 pandemic. Despite the global travel industry being upended by the disruption of 2020, the extended-stay sector has proven resilient as it caters to essential workers as well as longer-term residents.
Western Europe sees steady growth
Private equity activity within Western Europe also experienced steady growth in the first quarter. Total deal value increased 47% year on year to US$107.9 billion, while volume increased 27% to 605 deals.
In the largest deal of the quarter, Spanish telco infrastructure firm Cellnex continued its acquisition spree by acquiring French tower unit Hivory from KKR and Altice for US$6.3 billion. Consolidation among tower operators has accelerated amidst the pandemic. Already, telecom operators were realizing value by carving out infrastructure assets, but the increased demand for connectivity through reliable networks made this asset class even more attractive.
Blackstone continued its busy quarter, targeting Europe’s private jet market. The US buyout firm teamed up with infrastructure fund manager Global Infrastructure Partners and Bill Gates’ wealth manager Cascade Investment to make a US$6.1 billion bid for UK-listed private jet firm Signature Aviation.
The deal marks the end of a heated takeover battle between the two buyout groups, as they ultimately decided to join forces. It highlights the significant growth potential seen in the private jet market, which maintained a strong financial position throughout the pandemic.
SPAC trend reaches Asia
Asian PE activity also witnessed a sharp increase in deal value compared to pre-pandemic levels. A total of 198 deals worth US$48.1 billion were announced—more than doubling the US$21.8 billion recorded in Q1 2020, while volume rose by 25%.
The largest deal in the region saw Nasdaq-listed SPAC RMG Acquisitions Corp. II merge with India-based renewable energy company ReNew Power in a deal valued at US$7.2 billion. Following completion of the deal, ReNew Power is expected to list on the Nasdaq stock exchange.
India’s clean energy capacity is expanding as it looks to reach its target of 450 GW renewable energy capacity by 2030. SPACs offer India’s renewable developers a faster route to public markets.
The buoyant deal value in Q1 2021 signals that confidence has returned to the global PE market, and appears here to stay. While the market was left shaken by the COVID-19 pandemic, dealmakers rapidly adjusted to their new normal, turning to alternative methods—such as SPACs and co-investment strategies—to secure growth.