We point this out for the purpose of noting that PE firms had been mindful of the potential for a recession for a number of years. While there was certainly no foreknowledge of the trigger — or of the dramatic impact that a pandemic-induced supply/demand/liquidity shock would have — firms had been prepping for a downturn for a number of years. As a result, the degree to which many firms have survived and indeed, in some cases, thrived during the recession is no surprise.
As 2021 dawns, there exists a great deal of optimism. As vaccines begin to roll out across the world, many consumer-facing businesses, for example, are looking forward to supplying a year’s worth of pent-up demand. At the same time, significant uncertainty remains about what the “final” wave of the pandemic might look like in the early months of the year. With that in mind, we put forth a few predictions based on our read of current dynamics,with the caveat that we remain in uncharted waters.
The tech train keeps rolling
- What’s been interesting about the recovery in the second half of 2020 is the degree to which it’s been led by investments in the tech space. While PE investment in tech has been a powerful theme for a number of years — representing anywhere from one-quarter to one-third of PE investment activity — the pandemic has accelerated interest in the space. In the second half of this year, PE investment in tech companies represented roughly 40% of total deal value.
- 2021 should see a continuation of the trend, as firms invest at both ends of the size spectrum. At the larger end of the scale, they’ll continue to seek out opportunities in the SaaS and enterprise software spaces, often with more mature companies that value the opportunity to effect large-scale transformation away from the quarterly pressures of the public markets. At the smaller end of the scale, they’ll continue to invest in high-growth companies in emerging verticals such as Fintech, HealthTech and mobile.
- And across companies of all sizes, they’ll invest in those companies that are poised to benefit from the long-term behavioral changes we’re likely to see as a result of the pandemic. It is perhaps telling that one of the first large deals in Asia that occurred as the lockdowns there were lifted was an investment in the online education space.