GCG’s Q1 2020 Middle Market Private Equity Update provides an overview of latest trends in the market.
Key findings include the following:
- Prior to the 2008 recession, Middle Market (MM) Private Equity (PE) activity peaked at $230B in 2007 with 77% of that invested in deals between $100M and $500M. At its lowest point during the recession, total capital invested in the MM hit $77B, which represented a decline of 67%. Starting in the end of 2009, after the recession had officially ended, investment skyrocketed nearly hitting pre-recession peaks in 2012 and increasing 443% by 2019. At the current pace, the amount invested in 2020 will be the lowest since 2016.
- Capital overhang, which represents the amount of capital raised by PE funds that has not yet been invested, stands at the largest level it has ever been globally. The majority of this capital is in funds that are 0-2 years old and based in the U.S. Most of the $1.2T of overhang in 2019 has between 5-7 years to be invested based on average fund mandates that capital needs to be deployed within seven years. This means that in combination with the current market volatility, the overhang has potential to keep growing. This is good for MM companies as it encourages competition for deals among PE firms.
- Deal volume in Q1 2020 was the lowest since Q2 2014 and represented a drop of 36% and 26% from Q1 2018 and Q1 2019, respectively. Q1 2020 also represented a drop of 18% from Q4 2019, but again this only continued a downward trend beginning in Q1 2018. Deals under $100M continue to represent the majority of PE demand in the MM. The main driver behind the decrease in total volume in 2020 was a decrease in $25M to $500M deals, although the decline in $100M to $500M deals was significantly larger at 38% (vs 23%).
Click here for the full update.