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Q2 League Tables: Signs of PE Life Amid Covid

By Steve Gelsi | Published on June 30, 2020
M&A activity by private equity firms took a dive in the second quarter of 2020 as well as the fist half of 2020 as Covid-19 pandemic disrupted the deal economy.

As the late, great economic expansion approached maturity in recent years, private markets dealmakers expected the good times to continue unless some exogenous event occurred.

That Black Swan arrived in the form of the Covid-19 pandemic, which ended a nearly uninterrupted boom in M&A activity and valuation dating to the end of the financial crisis.

With the world’s worst pandemic in more than 100 years thrashing the economy, sectors such as leisure, travel and brick and mortar retailing went into a tailspin, the stock market melted down in February and March, and the second quarter dawned in full lockdown mode.

Despite this upheaval, PE deal pros hunkered down on their Zoom calls and home offices and got transactions done.

Private equity firms such as Apollo Global Management Inc. (APO) and L Catterton took advantage of low stock prices to make large PIPE transactions. SPAC deals maintained their course and M&A activity showed signs of life. IPOs from private equity and venture capital firms also took place as the tech sector remained in favor.

But that wasn’t enough to keep M&A activity from diving in both the second quarter as of June 26 and for the first half of 2020.

The Deal’s M&A database logged 835 M&A transactions in PE between March 1 and June 26, down from 1,407 in the year-ago period.

For the first half of 2020 as of June 26, 1,618 deals were logged in the database, down from 2,124 in the corresponding time period in 2019.

Still, Rob Brown, managing director and CEO North America at Lincoln International, said the bank used Zoom dinner meetings and virtual happy hours to keep deals going. The Chicago firm managed to get more than 20 deals to the finish line since March 15.

“That’s more deal than we expected,” Brown said. “When this whole things started, deals that were close to closing – we were able to keep most of those together…Things close to the goal line went forward, but it’s clear that a lot of processes got put on hold.”

In recent weeks, the firm has seen more M&A momentum as the stock market started a bumpy recovery and Covid-19 cases dropped in the Northeast.

As the first half of 2020 comes to a close, investors remain jittery about a rise in cases in other parts of the U.S.

But M&A remains on the table for sponsors, who continue to hold plenty of dry powder.

“We’ve definitely seen more momentum in technology and health care,” Brown said. “In the last three weeks, I feel much better about the back half of the year. There’s still this massive overhang of capital that wants to get put to work.”

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