Growth Equity
Growth equity deal activity rises sharply in 2021 as investors seek higher returns
February 22, 2022
US growth equity investing and deal value rose sharply in 2021, capping a decade of growth driven by investors on the hunt for stronger returns than those provided by buyouts.
Investors pursuing the strategy raised more than $78.3 billion in 2021, the highest in a decade and more than twice the amount in 2020. Growth equity deal value hit $121.5 billion last year, the largest single-year total since 2010.
"Growth equity has become an asset class in its own right, and many LPs are interested in increasing their exposure," said Rebecca Springer, a private equity analyst at PitchBook. "The biggest driver of this trend is performance—growth equity strategies have outperformed buyouts over the past few years."
The surge in activity has also been driven by private equity investors seeking exposure to higher growth companies at an earlier stage than buyouts, especially in sectors where mature companies are trading at extremely high multiples, Springer said.
The outlook for growth equity in 2022 is uncertain. The likelihood of interest rate hikes and the current rotation away from growth stocks may dampen valuations and weigh slightly on the strategy, she said.
However, those dynamics, if they come to pass as expected, could also offer GPs the opportunity to deploy capital at a better price than in recent months. And interest rates are likely to remain low by historical standards, which will continue to push LPs into alternative assets in a hunt for healthy returns, Springer said.
Of the dollars deployed in growth equity, about $36 billion went to technology companies last year, up 52% from 2020. Investments made in B2B more than doubled to around $29 billion. Healthcare and financial services also saw significant investment growth.
Here's a closer look at growth equity funding flowing into different industry sectors.
In one sign that asset managers' confidence in the strategy remains robust, Blackstone is reportedly targeting $7 billion to $8 billion for its second growth fund. If the fund reaches its target range, it would be the largest-ever vehicle of its kind, according to Buyouts Insider.
Featured image by z_wei/Getty Images
Investors pursuing the strategy raised more than $78.3 billion in 2021, the highest in a decade and more than twice the amount in 2020. Growth equity deal value hit $121.5 billion last year, the largest single-year total since 2010.
"Growth equity has become an asset class in its own right, and many LPs are interested in increasing their exposure," said Rebecca Springer, a private equity analyst at PitchBook. "The biggest driver of this trend is performance—growth equity strategies have outperformed buyouts over the past few years."
The surge in activity has also been driven by private equity investors seeking exposure to higher growth companies at an earlier stage than buyouts, especially in sectors where mature companies are trading at extremely high multiples, Springer said.
The outlook for growth equity in 2022 is uncertain. The likelihood of interest rate hikes and the current rotation away from growth stocks may dampen valuations and weigh slightly on the strategy, she said.
However, those dynamics, if they come to pass as expected, could also offer GPs the opportunity to deploy capital at a better price than in recent months. And interest rates are likely to remain low by historical standards, which will continue to push LPs into alternative assets in a hunt for healthy returns, Springer said.
Of the dollars deployed in growth equity, about $36 billion went to technology companies last year, up 52% from 2020. Investments made in B2B more than doubled to around $29 billion. Healthcare and financial services also saw significant investment growth.
Here's a closer look at growth equity funding flowing into different industry sectors.
In one sign that asset managers' confidence in the strategy remains robust, Blackstone is reportedly targeting $7 billion to $8 billion for its second growth fund. If the fund reaches its target range, it would be the largest-ever vehicle of its kind, according to Buyouts Insider.
Featured image by z_wei/Getty Images
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