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Q3 League Tables: PE in Partial Comeback

By Steve Gelsi | Published on October 1, 2020

PE firms in the third quarter of 2020 and cranked out a quicker pace of deals than the previous quarter, as they hunkered down on their Zoom calls from their home offices.

But the impact of the global pandemic continued to take its toll, as overall deal count fell sharply.

Activity rose handily from the anemic 1,292 deals in the second quarter of 2020, as deal-making increased toward the end of the quarter from jumbo deals to the lower middle market despite the usual late summer M&A lull.

Some of the vintage 2020 summer PE blockbusters included the sale of Providence Equity Partners LLC-backed video game creator ZeniMax Media Inc. to Microsoft Corp. for $7.5 billion

But third-quarter activity of 1,731 transactions (from July 1 to Sept. 29) was still way down from 2,666 in the corresponding time frame in 2019, according to The Deal’s database. .

Among the increasingly large PE- and VC-backed special purpose acquisition company transactions, Social Capital Hedosophia Holdings Corp. 11 acquired real estate data platform Opendoor Inc. for an enterprise value of $4.8 billion.

In another whopper, Conyers Park II Acquisition Corp. set plans to buy Advantage Solutions Inc. for $5.2 billion.

Among the many tech-related deals, Clayton, Dubilier & Rice LLC agreed to pay about $4.7 billion for Epicor Software Corp. from KKR & Co. Inc. (KKR); also, Providence Equity Partners LLC-backed video game creator ZeniMax Media Inc. to Microsoft Corp. for $7.5 billion.

In the middle market, Main Street Capital Corp. (MAIN) CEO Dwayne Hyzak said interest has surged upward around deal-making in the final months of 2020, based on inbound calls from advisers.

“If you talk to investment bankers, across the board they’re commenting that activity has picked up in the last six or eight weeks,” Hyzak said.

The overall pace quickened in the third quarter in the middle market as well, according to David Magdol, president and chief investment officer of Main Street Capital Corp. (MAIN).

Executives in Main Street’s 170-company portfolio more actively shopped for deals over the summer..

“We’re seeing portfolio companies looking for acquisition opportunities with other companies in their sector that may be stressed–say, if they had too much debt going into Covid,” Magdol said. “We definitely see M&A activity picking up.”

With the election pending and potential changes in tax policy coming down the road, business owners may be more nervous about selling larger chunks of their businesses.

Minority stake transactions are one option for families who want to hold on to more equity in their companies through a potential economic downturn, Magdol said.

Spinoffs and divestures also remain on the table.

“Companies selling off portions of their business is nothing new and we are seeing a minor uptick compared to normal as the effects of COVID-19 become more apparent,” said Eric Malchow, managing director and president of North America for Lincoln International LLC. “Whether the assets are underperforming or are no-longer aligned with company strategy, they can be very compelling to private equity buyers or other corporates. There was a shortage of supply prior to the pandemic so any carve outs coming into the market will surely get a close look.”

Dealmaking remained robust in healthcare. The sector saw, for example, the merger between MultiPlan Inc., a healthcare cost management company backed by Hellman & Friedman LLC and others, and Churchill Capital Corp. III (CCXX), a special purpose acquisition company backed by M. Klein & Co., in a transaction announced in July that implied an initial enterprise value for MultiPlan of about $11 billion.

Among other healthcare deals were Blackstone Group Inc.’s (BX) purchase of Takeda Pharmaceutical Co. Ltd.’s (TAK) over-the-counter consumer health business for ¥242 billion ($2.29 billion) and the sale of managed vision care company Versant Health Holdco Inc. by a Centerbridge Partners LP-led group for about $1.7 billion to MetLife Inc. (MET).

The third quarter also brought transactions including the sale in August of Francisco Partners Management LLC-backed revenue cycle technology firm eSolutions Inc. for north of $1.3 billion to Waystar Health, a healthcare payments software company backed by EQT ABCanada Pension Plan Investment Board and Bain Capital Private Equity.

–Armie Margaret Lee contributed to this report

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