6 Private Equity Predictions for 2020

February 2020

The private equity industry stands at the beginning of a new decade with more dry powder on hand than ever—$1.5 trillion—thanks to record fundraising in 2019.

However, with ongoing rumblings of an economic downturn and continued aggressive competition for quality deals, deploying that capital is getting more, not less, challenging. Ever the mother of invention, necessity is giving birth to creative new investment strategies.

Here are six trends from BDO that will help define the first year of a new decade in private equity deal making.

Prediction #1: Secondaries Will Continue to Eat into Primary Deal Share

The secondary market transformed from private equity’s sedate stepsister to one of the more explosive areas of growth among alternative investments.

Prediction #2: Digital Transformation Will Be a Driver of Value Creation

While competition for deals continues to be intense and deal multiples hover in the double digits, private equity funds are trending toward focusing on enhancing the value of their existing portfolio.

Prediction #3: Distressed Deals Will (Finally) Get Some Momentum

Underscoring the expectation that a recession, however elusive it has been thus far, is on the horizon, private equity fund managers say they expect investments in distressed businesses to be a top deal driver in the next 12 months, again according to BDO’s U.S. Private Capital Outlook.

Prediction #4: Business Developers Will Be Kissing More Frogs

As a byproduct of the intensity and volume of competition in the market, we are seeing more of our private equity clients create roles for business development representatives.

Prediction #5: Fund Managers Will Become Specialists

As competition for deals continues to sizzle and deal multiples remain in the low double digits, PE execs will continue to scrutinize opportunities closely. Part of this process means becoming industry specialists.

Prediction #6: More SPACs (Special Purpose Acquisition Companies)

While it may not be booming, there is certainly more interest in the market for special purpose acquisition companies (SPACs).