The findings come from our recent global survey of the institutional funding market, covering participants from the private equity and private debt landscape, gauging investor sentiment in the institutional finance market.
Optimism amongst the private equity community
Respondents, overall, are far more optimistic about the market than they were in June 2020: some 91% of respondents say they are ‘very much open for business’ and looking for opportunities to invest in new businesses and scale platforms with bolt on acquisitions. That compares with 74% in June. Only 4% of respondents report a level of optimism of three or below according to the survey criteria, compared to 29% previously. Similarly, 15% of respondents report a level of optimism in excess of 8, compared to just 5% in June.
Funds seeking new opportunities, less focused on managing the downside
Asked what best describes their fund’s strategy for the next 12 months, 39% of respondents say ‘focus on originating new platform opportunities’. That is nineteen points higher than the June findings. As for the number of funds that say they will be focusing on managing the downside in existing portfolios, it stands at just 10% in December 2020 compared to 24% in June 2020.
Stéphane Pithois, Global Head of M&A, Mazars, says: “The second edition of our survey confirms and reinforces the sense of optimism for which the private equity community is known. In an uncertain environment, investors have proven resilient and are seeking new opportunities in the immediate term, while expertly settling into remote working conditions. If the political environment remains more settled and capital continues to be made available, then we can expect private equity to actively remain on the lookout for investment opportunities.”
Further decline in revenues but to a lesser extent
Despite expectations that revenues will fall over the next 12 months, respondents view the decline as less severe than previously reported. Around one third of respondents expect a fall in revenue of 11%-25%, compared to 50% of respondents in the June 2020 survey. In addition, 40% of respondents say they expect a decline in revenue of just 0%-10%, compared to 17% of respondents in the first survey.
Shorter delays on exits expected
Just over half of respondents (51%) expect to delay their exit strategies in the next 6-12 months and beyond. That is 28 points lower than June, when 79% of respondents said their exit timings would be delayed. This further indicates an increased level of optimism emerging in the second half of 2020, potentially reflecting some of the reduced restrictions towards the end of 2020 and the anticipation of a vaccine rollout in Q1 2021.
Very comfortable with completing deals from home
Investors are slightly more comfortable working from home now than they were in June; 89% of investors say it is possible to complete deals remotely, compared to 88% in the earlier survey. More than a third (37%) of respondents now see completing deals from home as ‘business as usual’, which is 23 points higher than the June findings.
More distressed opportunities
There are more distressed opportunities in the market, according to the latest findings. Some 70% of respondents report seeing them – of those that see them 41% say they are of interest, 29% say they are not. This compares to 54% of respondents in June saying they had come across distressed opportunities.
Majority expect U-shaped recovery
While the majority (63%) of respondents still anticipate a U-shaped recovery (compared to 82% in June) the number of respondents expecting a V-shaped recovery has increased significantly from 10% to 27%. The most common ‘other’ response aside from U or V was a K-shaped recovery, which occurs when different parts of the economy recover at different rates following a recession.
Governments have responded well, say majority of investors
A majority (65%) believe their government has responded well to the pandemic (vs 51% previously). However, a significant proportion (20%) still consider it too early to tell (vs 31% in previously). The percentage of participants that feel their government has not responded well fell from 20% to 15% in the latest survey.
To find out more about how private equity appetite and attitudes during Covid-19, read our report here.