Private Equity
US PE middle-market trends in five charts
January 5, 2022
In the third quarter of 2021, middle-market US private equity firms continued their feverish pace set through the first half of the year. In fact, the first three quarters of the year totaled more than that of the previous record year in both deal count and value.
The latest flurry of PE activity is driven by firms' desire to capitalize on booming economic growth and low interest rates before the so-called macroeconomic tide turns. Our recent US PE Middle Market Report analyzes the trends and eye-opening stats within dealmaking, exits, mega-funds and other noteworthy topics.
Here are five key charts looking back on middle-market PE activity in Q3 2021.
Middle-market PE firms sustained a strong dealmaking pace set earlier in the year, closing 2,847 middle-market buyouts through Q3 2021 for a combined $438.6 billion. The three-quarter total for 2021 surpassed that of 2019, the previous record year, in both deal count and value. Trailing-12-month cumulative deal value was 50% higher than the next best four-quarter period, which was Q3 2018 through Q2 2019.
Inflation is top of mind for middle-market firms. Year-over-year Consumer Price Index gains remained above 5% for the months preceding Q3 2021. In addition, many middle-market companies have been experiencing elevated labor, energy, logistics, and raw materials costs.
Industrials dealmaking has remained relatively flat as a proportion of PE middle-market activity over the past decade, including in 2021. Although many manufacturers have successfully passed on increased input costs to customers, they may not be able to continue to do so should inflation remain high over the coming quarters.
Deals for healthcare providers also accounted for a smaller share of middle-market deal activity in 2021, reaching the lowest proportion since 2017 despite a flurry of activity in several high-demand subsectors.
Middle-market emerging managers fared better in 2021 than in 2020. Emerging managers play an important role in middle-market fundraising because virtually all new managers, whether or not they aspire to raise large-cap funds eventually, begin their fundraising journeys at the sub-$5 billion level.
Funds raised by emerging managers accounted for more than 40% of middle-market funds closed and just over a quarter of capital raised through Q3 2021.
Buy-and-build strategies continue to be an important strategy for middle-market firms deploying capital in a highly competitive environment. Add-ons as a proportion of middle-market deal flow reached an all-time high in 2021 at 67.9%. In healthcare, technology, and especially financial services, the proportion is even higher.
Rolling market multiples were on a steady climb from 2018 to 2019 before rocketing up in 2020. Through Q3 2021, the market multiples figure nearly surpassed 2020's total. Many experts believe that multiples cannot rise much higher—although similar statements were made in 2018 and 2019—and many firms are underwriting current investments for zero future multiple expansion, if not multiple contraction.
Featured image by twomeows/Getty Images
The latest flurry of PE activity is driven by firms' desire to capitalize on booming economic growth and low interest rates before the so-called macroeconomic tide turns. Our recent US PE Middle Market Report analyzes the trends and eye-opening stats within dealmaking, exits, mega-funds and other noteworthy topics.
Here are five key charts looking back on middle-market PE activity in Q3 2021.
Middle-market PE firms sustained a strong dealmaking pace set earlier in the year, closing 2,847 middle-market buyouts through Q3 2021 for a combined $438.6 billion. The three-quarter total for 2021 surpassed that of 2019, the previous record year, in both deal count and value. Trailing-12-month cumulative deal value was 50% higher than the next best four-quarter period, which was Q3 2018 through Q2 2019.
Inflation is top of mind for middle-market firms. Year-over-year Consumer Price Index gains remained above 5% for the months preceding Q3 2021. In addition, many middle-market companies have been experiencing elevated labor, energy, logistics, and raw materials costs.
Industrials dealmaking has remained relatively flat as a proportion of PE middle-market activity over the past decade, including in 2021. Although many manufacturers have successfully passed on increased input costs to customers, they may not be able to continue to do so should inflation remain high over the coming quarters.
Deals for healthcare providers also accounted for a smaller share of middle-market deal activity in 2021, reaching the lowest proportion since 2017 despite a flurry of activity in several high-demand subsectors.
Middle-market emerging managers fared better in 2021 than in 2020. Emerging managers play an important role in middle-market fundraising because virtually all new managers, whether or not they aspire to raise large-cap funds eventually, begin their fundraising journeys at the sub-$5 billion level.
Funds raised by emerging managers accounted for more than 40% of middle-market funds closed and just over a quarter of capital raised through Q3 2021.
Buy-and-build strategies continue to be an important strategy for middle-market firms deploying capital in a highly competitive environment. Add-ons as a proportion of middle-market deal flow reached an all-time high in 2021 at 67.9%. In healthcare, technology, and especially financial services, the proportion is even higher.
Rolling market multiples were on a steady climb from 2018 to 2019 before rocketing up in 2020. Through Q3 2021, the market multiples figure nearly surpassed 2020's total. Many experts believe that multiples cannot rise much higher—although similar statements were made in 2018 and 2019—and many firms are underwriting current investments for zero future multiple expansion, if not multiple contraction.
Featured image by twomeows/Getty Images
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