It would be an understatement to say that the year 2020 was difficult. However, we’ve entered 2021, and it’s worth having a positive outlook towards the coming year. Businesses need some expert insight into what they can expect in 2021, and the SaaS company PitchBook that delivers data, research and insights, has shared some predictions that apply to European PE and VC industries. Here are the predictions:
European PE deal activity to cross €480B in 2021
Private Equity or PE deals are expected to cross the €480B mark in 2021. The rationale behind the prediction is provided by PitchBook’s EMEA Private Capital Analyst Dominick Mondesir. He notes that 2021 will primarily be about recovery.
“Many managers have stated their deal pipelines across all strategies are particularly robust going into 2021, and recent GP surveys indicate deploying capital in 2021 is the main priority for managers,” says Mondesir. “When analysing previous downturns, it took managers around one-year post-crisis to deploy capital at scale, and we expect outsized figures in 2021 to reflect that trend. Finally, pent-up demand from sponsors that were not able to hit deal volume and capital deployment targets in 2020 will also contribute.”
While PitchBook’s prediction seems sunny, there’s also a caveat. COVID-19 is still raging on, which is expected to lead to considerable dispersion across European economies and dampen economic and PE deal activities. Furthermore, Brexit and associated European geopolitical tensions could cause material disruption to PE deals in Europe’s largest PE market.
VC follow-up rounds will remain above 90% of overall capital invested across Europe
Nalin Patel, EMEA Private Capital Analyst at PitchBook, notes that during the last decade, capital pouring into first-time rounds has remained consistent, whereas capital within follow-on rounds has soared. “Capital has not been siphoned away from first-time rounds. Rather, there is a wider array of sources and greater amounts of capital flowing into the European VC landscape, with a particular focus on the early and late stages. We do not expect the tap at each financing stage to shut off anytime soon,” Patel notes.
The PitchBook prediction takes note that over 90% of overall VC deal value took place within follow-on rounds for the first time in 2019 and 2020. Median VC deal sizes and valuations are said to have grown notably during COVID-19 as well. The possible caveat here is that there could a stagnation in terms of follow-on round investment as growth becomes harder to capture during the uncertain period of COVID-19, which is characterised by rising unemployment figures and limited sustainable macroeconomic growth.
European SPAC listings could hit double digits in 2021
In 2020, we witnessed a surge in US SPAC (Special Purpose Acquisition Company) with over 220 listings, while Europe observed only four European SPAC listings. However, this year, SPAC listings in Europe are expected to rise notably and could hit double digits. As per Mondesir, the outsized activity in the US will affect Europe and Multiple European exchanges
and regulators are said to be competing to become the most favourable exchange and jurisdiction to list a European SPAC.
“Duplicating the favourable portions of the US SPAC structure, improving upon its weaker areas, and changing exchange rules will be crucial in unleashing European SPACs as an option for sponsors and institutional investors,” Mondesir notes.
The challenge for the European SPAC market is touted to be a thin investor base, a perceived lack of credible managers, and key structural and regulatory challenges.
