3 minute read 27 Apr 2022
Closeup shot of a doctor taking a patients pulse

Private Equity Pulse: Five takeaways from 1Q 2022

By Pete Witte

EY Global Private Equity Lead Analyst

Helping clients and stakeholders understand the trajectory and impact of vital trends. Developing thought leadership and insightful content. Aspiring platform tennis pro.

3 minute read 27 Apr 2022
Related topics Private equity IPO

Although deal activity remains strong, private equity is operating in a very uncertain environment.

In brief
  • Deal value declined by 27% from the first quarter of last year
  • Geopolitical uncertainty and the impact from the war in Ukraine.
  • PE exits declined by 55% in the first quarter of 2022.

After coming off their most active year in history, with more than US$1.2t in deals announced last year, Private Equity (PE) firms are now operating in a far more uncertain environment. While deal activity currently remains robust, elevated levels of macro and geopolitical uncertainty have the potential to create headwinds for new transactions. At the portfolio level, increased commodities costs, supply chain disruptions, elevated labor expenses and increased costs of borrowing are all necessitating that PE firms work closely with companies to understand and respond to a highly fluid and rapidly changing environment. 

PE activity softens in Q1 from last year’s breakneck pace

In the first quarter this year, PE firms announced deals valued at US$221b, a decline of 27% from the first quarter of last year. It’s worth noting however, that despite the deceleration, activity remains extremely robust – year-over-year comparisons are confounded by the fact that the first quarter of 2021 saw 719 deals announced valued at more than US$300b, making it the second-most active quarter on record. Indeed, given the breakneck pace at which deals were announced last year, it’s altogether unsurprising that the market is now witnessing some measure of slowing as participants digest the acquisitions made over the last year and a half.  

Moreover, the pace at which capital was deployed in Q1 remained relatively steady over the course of the quarter; approximately US$70-US$80b in deals were announced each month. That there was no immediate drop-off in activity during March suggests (along with anecdotal reports from the field) that deals which were already well-advanced in the pipeline went through despite the geopolitical turbulence that began in late February. It remains to be seen to what degree activity may be impacted for deals at earlier stages of discussion – by midyear, this will be more evident.

Primary impacts from the war in Ukraine are few, but idiosyncratic effects widespread in the portfolio

Clearly, the eruption of conflict in Eastern Europe injected a significant measure of uncertainty into the macro environment. For the PE industry, first-order effects have thus far been relatively limited - PE investment in Russia has historically been de minimus, based on the complexities of the operating environment. Overall, PE activity in Russia and Ukraine represents well under 1% of the global activity, totaling approximately just US$4b over the last decade.

However, PE firms are actively working to understand the potential second-order impacts of the war in Ukraine, which are far more widespread. With portfolio companies around the world operating across a range of industries, the follow-on effects of sanctions, supply chain issues, banking disruptions, and higher commodities prices all have the potential to impact portfolio company KPIs, although these impacts will be highly idiosyncratic. This includes:

  • Investments in the consumer and agribusiness spaces are seeing higher input costs pertaining to commodities, packaging material, labor, oil, and transportation.
  • Investees operating in the industrials space that are dependent on Russian exports for metals such as nickel, platinum, cobalt, and copper could face disruption.
  • The margins of specialty chemicals companies are being impacted by the price of crude, a crucial raw material for many.

In aggregate, PE firms have deployed US$1.1t in European assets since 2017, significant portions of which were allocated to companies in the consumer (17%), industrials (13%), and materials (10%) spaces –  sectors that are being challenged by higher input costs. Firms are therefore busy revisiting the pandemic playbook, wherein they sought to assess and triage portfolio companies in order to respond first to those that were the most heavily exposed.

Also of significance is central banks’ reaction to the war in Ukraine, to the extent that the timing of potential rate increases (and PE’s cost of borrowing) is impacted, which could challenge more highly leveraged transactions.

What increased volatility might mean for deals

If history is any guide, PE firms will overall remain active. Often, macro disruption tends to shift firms’ areas of focus - in the early days of the pandemic, for example, with lending markets frozen and M&A activity effectively at a standstill, many firms shifted to credit investments and Private Investment in Public Equities (PIPEs). For example, in Q2 2020, with the pandemic-induced market dislocation at its peak, the number of PIPE deals effectively quadrupled from the average of previous quarters. And on the credit side, many PE firms acted quickly to invest in par recovery plays as widespread selloffs in the leveraged loan and high yield markets saw prices fall at a record pace.

Today’s environment is likely to see similar measures around strategizing for a market likely to be defined by different fundamentals than recent years. Recent weeks, for example, have seen a number of US take-private deals enabled by a market that fell 13% peak-to-trough.  

Exit activity slows

Exit activity saw more dramatic declines than acquisition, based partially on its greater sensitivity to macro externalities. Overall, PE firms announced 296 exits in the first quarter of 2022 valued at US$109b, a decline of 55% by value from the same period last year. Exits declined across all types – sales to strategics fell 52% as potential acquirors stepped back in order to focus on potential disruptions to their core businesses. Sales to other PE firms fell by nearly 15%. Sales to SPACs, which at one-point last year accounted for transactions valued at more than US$41.4b, fell to just US$9b; and IPOs fell 94% from the first quarter of last year, with just two IPOs valued at US$2b occurring in the first quarter of this year. 

Secondaries market reaches new heights with GP-led deals being key drivers

The evolution of the secondaries market has been a key theme in private equity over the last decade. Years ago, the market was characterized by limited liquidity and sellers that were often distressed. Today, more than US$100b in fund interests changes hands each year – last year a record number of transactions valued at more than US$130b. At one time, most deals were led by LPs seeking to offload their interests; today, GP-led secondaries account for more than 50% of transactions by value. Of those, continuation funds represent the bulk of these deals.

Continuation funds allow investors to hold assets for longer. For LPs, they provide optionality – those that want to continue with the asset can, while those that want liquidity are able to achieve it. With firms returning to market faster than ever to raise new funds, that optionality has become more important. 

Select secondaries funds since 2021


Commitments (US$b)

Fund manager

Month closed

Coller International Partners VIII


Coller Capital

January 2021

Crown Global Secondaries V


LGT Capital Partners

June 2021

Hamilton Lane Secondary Fund V


Hamilton Lane

February 2021

BlackRock Secondaries & Liquidity Solutions


BlackRock Private Equity Partners

March 2021

Newbury Equity Partners V


Newbury Partners

November 2021

Source: Pitchbook

The pandemic represented a significant turning point for these types of structures, as traditional exit routes were blocked. As increased volatility and challenges in exiting deals via traditional routes once again threatens to become an issue, the secondaries market is perhaps poised to take yet another step forward in its importance. 


Deal activity currently remains robust. However, elevated levels of macro and geopolitical uncertainty have the potential to create headwinds for new transactions.

About this article

By Pete Witte

EY Global Private Equity Lead Analyst

Helping clients and stakeholders understand the trajectory and impact of vital trends. Developing thought leadership and insightful content. Aspiring platform tennis pro.

Related topics Private equity IPO