Market Trends of Private Equity Industry
Growth Investments Have Become Larger and More Complex
Growth investments of USD 19.6 billion in 2021 are lower by around 14% compared to 2020. However, growth investments in 2020 were propped up by mega investments worth USD 15.1 billion in RIL group companies. Adjusted for these one-off deals, growth investments in 2021 are almost 2.5 times the value recorded in 2020 (USD 7.8 billion, adjusted value) and more than twice the value recorded in any of the previous years. This growth was not only driven by a higher number of deals but also by an increase in the average deal size. 2021 recorded 187 deals, 61% higher compared to 2020 (116 deals) and an average deal size of USD 105 million, which is almost 50% higher than earlier years except 2020 which had a higher average deal size due to the mega deals in RIL group companies. Eight sectors recorded over USD 1 billion in growth investments in 2021, led by e-commerce, media and entertainment, real estate, and financial services.
Emergence of SPACs to Boost the Demand for Private Equity
The SPAC IPO has been around in its current form since the 1990s, but the surge in popularity is more recent. 2021's SPAC proceeds of USD 143 billion nearly doubled 2020's record USD 73 billion. The number of SPAC mergers (including both announced and completed acquisitions of target companies) hit new records every quarter in 2021 to peak at 104 in Q4'21, although the pace slowed in 2022 so far. In the first two months of 2022, the average redemption rate for a SPAC merger reached 80% - meaning 4 out of 5 shares were redeemed before the target was acquired - up from about 50% in 2021 and just 20% in 2020. Moreover, the future of SPACs will likely involve private equity firms in sponsoring many SPACs by utilizing their financial resources, networks, deal-making expertise, and industry experience. This will further contribute to the rapid expansion of SPACs as a preferred investment vehicle in the forthcoming years. Lastly, some forces like the lingering pandemic and geopolitical turmoil are also driving PE deal-making imperatives.
