The best time to raise funds, spac has a stronger momentum From Global PE development trend in 2022
The following is the The best time to raise funds, spac has a stronger momentum From Global PE development trend in 2022 recommended by recordtrend.com. And this article belongs to the classification: Venture capital.
In the field of private equity and venture capital, 2021 has become a landmark year. After getting rid of the initial concerns of the epidemic in 2020, the long-term trend of private equity continues to advance. Based on recent developments, the following are some trends that may affect the industry in 2022 and beyond.
At present, the global private equity industry as a whole is obviously not short of funds. Now is the best time to raise money, especially for large companies with strong brands. But in a market where asset prices have been pushed up by historic stimulus measures, record capital reserves also face their own difficulties. The general partner must redouble its efforts in investment selection to avoid paying too high a price for general assets.
Limited partners understand that, on average, private equity investment can bring excellent financial returns, but the work of fund managers is arduous. This is particularly true for respondents in Europe, the Middle East and Africa, with 34% of respondents saying that persuading investors that their funds will be put into use in time is the biggest fundraising challenge facing their companies.
In the Asia Pacific region, the proportion fell to 25% and in North America to 16%. In North America, investors do not seem to care about the ability of private equity managers to deploy capital. “It will take some time to convince investors that their funds will be put into use soon. We have prepared the list of potential target companies and valuation summary, but the most stressful thing is to convince investors.
The managing director of a French private equity firm agreed. “We have to prove to investors that we can use their capital in the right way,” he said In the current environment, there are many challenges in finding the right goal, so the situation becomes difficult. “
The size of private placement companies is important
The biggest fundraising challenge facing fund managers in North America is to compete with larger general partners, which was mentioned by 22% of respondents in the region. It is no secret that the total capital of private equity has reached an all-time high. A large number of funds poured into private equity funds, but AUM growth in various fields was uneven.
This trend has appeared before 2020, but the epidemic has exacerbated this trend. Travel restrictions benefit established managers because capital flows to companies with strong, existing limited partnerships. On the contrary, PreQin’s data show that only 16% of funds were raised for the first time in 2020, the lowest level since this century. More importantly, the 50 largest private equity companies raised 50% of the funds of the whole industry. “The competition in the market is very fierce. In order to attract more business, larger GP is providing preferential conditions for investors. This has always been a challenge to compete for the capital of limited partners.
Creative spark
Most respondents from all regions said that in order to stay ahead in the current environment, their companies are creatively looking for targets (60-74%), locking in a good deal as soon as possible (63-80%), configuring a separate dedicated capital pool for opportunistic transactions (60-70%), and / or investing in structured equity transactions, including minority equity investments (51% – 75%).
All these strategies belong to the category of creativity and flexibility, which can maximize the number of investment opportunities. In this highly competitive market, this is very important because capital comes not only from traditional sources of funds, but also from spacs that directly compete with private equity funds for private assets. “It’s most important to think creatively and use diverse methods. It’s becoming more and more important to get to know the company early and then take advantage of it.” “This may mean making growth investments with a view to eventually becoming a controlling investor or making minority investments in a large family business.”
More than three-quarters of North American respondents said their current fund had the ability to hold minority joint investments. A slightly higher proportion (57%) of respondents in Europe, the Middle East and Africa said the same, while less than half of Asia Pacific respondents said their current fund funded such transactions. At the same time, 84% of respondents in all regions said that their current funds invested in growth capital transactions, and 62% said that their interest in growth investment had increased in the past 12-24 months. This shows the benefits of industry diversification. In line with this, 61% said their interest in broadening investment strategies was also rising over the same period.
This is an increasingly common theme. Some companies have created specific funds for growth equity investments. This is very noteworthy. This provides more options for private equity companies. If you are a large private equity fund, you can support a company at an early stage, obtain early investment opportunities and possibly obtain higher returns. Importantly, it can also be a useful platform for buy and build operations.
Similarly, nearly three-quarters (74%) of respondents said their interest in working with strategic buyers had increased in the past 12-24 months. These partnerships have a risk reduction effect on both sides. Investors have acquired profound industry knowledge. In terms of strategy, even if M & A is not their main business, they can cooperate with people who do this work every day.
One direction
Another reason why private equity companies must show greater creativity, flexibility and patience comes from the desire of limited partners for deeper participation. Nearly half (47%) of respondents pointed out that limited partners wanted more control over the direction of the invested company. This is an emerging topic, but it is also part of a broader theme.
It is a standard practice for private equity companies to set up limited partner advisory committees, but these committees are usually established to advise the general partner on fund issues, such as major changes in fund management documents or voting on the trigger of key person terms. Historically, general partners have been free to deploy capital and use their expertise to drive value.
However, several related trends have strengthened in recent years. First, investors require managers to improve transparency, especially in terms of cost structure and performance of portfolio companies. At the same time, limited partners have further promoted direct investment. This is a form of joint investment, in which their general partners provide project opportunities and invest outside the fund, but the institution will also cultivate transaction matching talents internally. This more independent and participatory investment approach coincides with the observation of respondents, who believe that limited partners are speaking more and insist on having more say in how to manage investments to achieve higher performance and return.
The special purpose acquisition company (SPAC) will continue to exist
In the past two years, spac has performed strongly in the field of private placement. Spac has become an important consideration for the exit of private equity investment industry, which has triggered a series of related transactions. Competition intensifies. With the relaxation of other ways such as pipe investment, spac sponsors are seeking debt financing. With the support of various financing methods, the number of spacs formed in 2022 will exceed the total number of spacs formed in all previous years. Spac will remain strong as “a viable additional exit route” in the coming years.
According to the recent performance of private equity investment companies, spac may become an important part of the business of private equity investment companies in the next 10 years. However, professionals such as Phil ingle of Morgan Stanley believe that the SPAC market may be experiencing some fatigue.
The holding period has increased, but it has stabilized
During the financial crisis in 2008, the average holding period of private equity companies was less than 4 years, but the average holding period increased to more than 5 years in 2014 because it was challenging to exit the market.
Now it seems that the holding period of the fund has been stable at 4.8-4.9 years for four consecutive years. The epidemic seems to have little effect on this. Unless there is a strong trigger mechanism, the holding period may be maintained at about 5 years by 2022.
Decapod rise
As investors chase a limited number of potential companies, valuations are rising, and the era of the “ten horned beast” with a valuation of $10 billion or more has come. By November 2021, the number of decapod will double that of 2020. Many decapod companies have also maintained their valuations after the IPO – most of the 31 decapod companies listed since Facebook’s listing have higher share prices than their highest valuations during the private placement period.
The original decapod companies were Facebook (2007) and Alibaba (2009); Until 2014, their valuations were rare, when seven more companies joined their exclusive clubs. Since 2007, 84 companies have become “decapod”.
Based on this high figure, we can expect more companies to join the club, based on the following factors: (1) about 90 of the 1000 Unicorn companies currently operating are valued at between $5 billion and $10 billion; (2) Investors’ interest in high growth companies is growing, and the supply of such companies is limited; (3) The private equity investment industry has sufficient funds, and its capital level is at an all-time high.
Digital acceleration is likely to continue and surpass fintech
Private equity firms’ interest in technology is at a high level and rising. The epidemic highlights this, but as Bloomberg points out, this acceleration is long-term.
Private equity acquisition of technology companies
Investors are focusing on technology companies because they see consumers eager to adopt disruptive technologies, becoming more sensitive to numbers and paying more and more attention to whether products are worth their money.
As shown in the figure, the attention of private equity fund managers to technology stocks has increased over the past decade. CrunchBase identified 127 such deals in 2020, including high-profile deals related to realpage (acquired by Thomas Bravo for $10.2 billion), ancetry (acquired by Blackstone for $4.7 billion) and pluralsight (acquired by Vista equity partners for $3.5 billion).
Based on the interests of investors, it is certain that transactions in the technology industry will grow, especially when technology is regarded as a subversive and solution. For example, private equity companies are showing interest in agricultural technology as a solution to supply chain problems encountered during the epidemic. Pitchbook estimates that agricultural technology received $2.1 billion in venture capital in the second quarter of 2021, far more than in the fourth quarter of 2019.
Environmental, social and Governance (ESG) considerations
Private equity fund managers pay more and more attention to ESG factors, including the requirements of investors and regulators to meet ESG related standards, more asset management companies adopt ESG standards as part of their strategy, not just initiatives, and the shortage of ESG related talents. These trends continue. As more and more fund managers and investors realize this, more investment themes have emerged.
The practice of “bleaching green” (up to 40% of the companies reviewed may be misleading) may be reduced because ESG considerations have become more homogeneous and the market is beginning to realize this practice. This decline may eventually lead to greater trust in ESG indicators and data.
MSCI believes that ESG regulation is at a crossroads and is paying close attention to whether there are signs of convergence among the existing 34 regulators and standards. It believes that if more standards are adopted, this field may become more fragmented and chaotic.
reference material:
2022 Global Private Equity OutlookÂ
https://www.dechert.com/knowledge/publication/2021/11/2022-global-private-equity-outlook.html
Trends in private equity in 2022
More reading: investment community: more than 500 VC / PE invested nearly 30 billion in medical treatment in the first half of 2019: statistical report of PE / VC industry in the first half of 2017 (download attached) illustration of empirical analysis on the feasibility of PE operation mode of Education Foundation PE and angel investment – infographic Investment Research Institute: China’s VC / PE market completed fund raising in August 2017, with a fund size of US $27.564 billion. In July 2015, 877 M & A transactions were announced, and the manufacturing industry remained at the top of the investment. Private venture capital report: number of funds raised in the first half of the year The scale reached a new high, PE was slightly deserted, and the low-cost hotel business was saturated. PE began to target the high-end tourism market. BAIC & Qingke: 2021 CVC Investment Research Report in the field of Pan automobile and large travel (attached download) Sequoia China & Qingke: 2021 value co Creation Research Report of Chinese equity investment institutions. United Nations Trade and Development Organization: 2021 World Investment Report (Chinese version) Hurun: Global Unicorn list in 2021 Morgan Stanley: Qingke Research Center, the top 10 Chinese companies with the highest proportion of US capital: Research Report on the investment and development of cultural and creative industries in Hangzhou from 2020 to 2021 (with download) PwC: repurchase and Trend Outlook of M & A activities in China’s consumer industry in the first half of 2016-2021 (with download)
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