Asset prices are on the rise
SURVEY SNAPSHOT
No longer in triage mode and with a better understanding of which sectors and businesses are thriving or struggling, private equity and venture capital fund managers are gearing up for a highly competitive—and expensive—year of M&A.
BDO Private Capital Pulse Survey
Spring 2021
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After suppressed deal activity in early/mid 2020, 2021 is set to release pent-up demand. Fund managers expect competition to be fierce and asset prices to increase:
91% of fund managers say asset prices will rise, more than half of whom project that increase to be 10-25% and higher.
OPTIMIZATION
37%
plan to restructure or reorganize
will reevaluate their real estate footprint
32%
Methodology
Survey Respondents
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BDO’s Private Capital Pulse is a survey of 200 venture capital and private equity fund managers in the U.S. The survey was conducted by Rabin Research Company, an independent marketing research firm, in March 2021.
Methodology
Survey Respondents
rank cutting costs as their top business priority
13%
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LPs are clamoring for ESG investments
COVID-19 has indefinitely altered the perception of risk
Taxation of digital products/ services is the top tax concern
PE targets growth equity, VC early stage investing
Strategic buyers and hedge/ mutual funds pose the most competition
Asset Prices on the Rise
Private Company Sales and Capital Raises
1
Top 3 Deal Drivers
BDO'S TAKE
Though not under the same pressure to deploy dry powder as during the Great Recession, private capital has nearly $3 trillion of committed capital to put to work. Fund managers are expanding their investment strategies and carefully evaluating targets’ addbacks and underlying fundamentals. 2020 heightened competition for quality deals, and that trend will continue to color deal flow in 2021.
What forces do private capital fund managers see shaping the deal-making landscape this year?
Setting the Stage for Deals in 2021
Succession Planning
2
Trades to a Financial or Strategic Buyer
3
Strategic Buyers
and Investors
1
Hege/Mutual Funds
2
Sovereign Wealth Funds
3
Top 3 Competitors
New Deals/
Investments
1
Add-on Acquisitions/ Follow-on Investments
2
Applying Equity Relief to Portfolio Companies
3
Top 3 Areas of Investment
BDO'S TAKE
The pandemic has shifted priorities for private capital evaluating deals today. Recovering from a global event that has rocked the economy and made remote operations a basic requirement for conducting business, tech shops and risk management are at a premium. Meanwhile, industries that have benefited from the pandemic will see tailwinds for the foreseeable future.
Although private capital mastered the COVID-19 learning curve relatively quickly, the pandemic has altered funds' criteria for evaluating deals for the foreseeable future.
Private Capital’s Post-Pandemic Expectations
How will assets trade in 6 months vs. today?
Top 3 long-term impacts of COVID-19 on deal making
Digital Capabilities
50%
Robust Risk Management
45%
Higher Long-term Valuations
43%
(in certain industries)
BDO'S TAKE
The social unrest and environmental catastrophes of 2020 have placed ESG squarely front of mind for investors. While they get a handle on how to approach and integrate ESG into investment criteria, firms will pursue lower-hanging fruit, such as diversity hiring and expanding boards to include minorities.
ESG Takes Center Stage
of fund managers said it was important to their LPs to incorporate ESG into investment criteria
94%
LPs Have Spoken: ESG a Major Investment Criterion
BDO'S TAKE
Workforce strategy should lead with empathy and focus on enabling employees to reach their next level of potential. That starts with building and reinforcing an equitable culture with advancement opportunities for all and extends to optimizing work through technology. Dive deeper into what's next for work.
BDO'S TAKE
Though not under the same pressure to deploy dry powder as during the Great Recession, private capital has nearly $3 trillion of committed capital to put to work. Fund managers are expanding their investment strategies and carefully evaluating targets’ addbacks and underlying fundamentals. 2020 heightened competition for quality deals, and that trend will continue to color deal flow in 2021.
BDO'S TAKE
The pandemic has shifted priorities for private capital evaluating deals today. Recovering from a global event that has rocked the economy and made remote operations a basic requirement for conducting business, tech chops and risk management are at a premium. Meanwhile, industries that have benefited from the pandemic will see tailwinds for the foreseeable future.
Methodology
Survey Respondents
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The 2021 BDO Middle Market CFO Outlook Survey is a survey of 600 middle market CFOs in the U.S. The survey was conducted by Rabin Research Company, an independent marketing research firm, in September 2020.
Methodology
Survey Respondents
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