Bain & Co: Tech, growth-oriented buyouts, club deals feature in ‘supersized’ PE industry

Private equity is seeing an explosion of activity this year across fundraising, deals and exits, a report from Bain & Co revealed.

The private equity industry is supersizing – and is now approximately three times bigger than it was 10 years ago, according to the consulting firm’s 2021 H1 Global PE Market Update published in July.

For the first time in history, disclosed buyout deal value is on track to surpass $1 trillion.

“Deal value in the last four to five years has bounced around $500 billion-$600 billion. Getting to a trillion this year is double what the industry did in 2020 – a gigantic accomplishment if the rest of the year continues to play out like the first half,” Hugh MacArthur, global head of PE at Bain & Co, told affiliate Private Equity International.

Exits and fundraising are also at record levels and are set to reach $976 billion and $1.3 trillion, respectively, by the end of the year. That compares with $283 billion and $323 billion in 2011.

Also a first, global private capital dry powder, which includes infrastructure, real estate, private debt, secondaries and venture capital, has crossed the $3 trillion mark in the first half of 2021. About a third of that amount or some $1 trillion is allocated to buyouts. Private capital dry powder stood at $2.8 trillion in end-2020, from $1.2 trillion a decade ago.

“You can think about the industry in all respects having tripled in size over the last decade,” MacArthur noted. “This underscores the attractiveness of private asset classes for investors and how that remains on trend for the foreseeable future.”

Asked whether the industry’s massive growth is sustainable, MacArthur noted that private equity’s share of overall corporate transaction is still not meaningful enough.

“It’s huge in one sense, but if you put it in the context of the public markets and the economy – it’s actually still not that big.” He noted that about 40,000 companies change hands globally in any given year and only between 3,000 to 4,000 of those deals are PE-backed, representing less than 10 percent of all corporate M&A, despite the industry tripling in size over the past couple of years.

There’s also a continued secular drive in the technology space. According to Bain’s analysis, tech deals now account for one in every three deals done in the first six months of the year.

“All things technology writ large are penetrating the buyout space more than ever before. For huge buyout deals that have a tech component to them… these force GPs to ask themselves, ‘what is my technology strategy, how am I going to incorporate thinking about tech in my investments and how I add value to portfolio companies?’ – because that’s where the PE industry is going,” said MacArthur.

“Anything that has a technological component – increasingly a larger and larger share of the market – has growth and future growth priced in and therefore command very attractive multiples.”

The industry is also starting to see more club deals – Blackstone, Carlyle Group, Hellman & Friedman and GIC have joined forces to acquire healthcare supplier Medline in a deal reportedly worth more than $30 billion in June.

As investor demand for PE picks up – 90 percent of LPs in Bain’s earlier study indicated they will either maintain or increase their allocation to the asset class in the next 12 months – “the possibility of doing larger deals is now rearing its head”, MacArthur noted.

“As funds get larger over time and LPs themselves continue to co-invest, we will begin to see more deals of this nature,” he said.