Differences in a Decade: Comparisons of Private Equity Then and Now

Private equity has undoubtedly undergone a dramatic shift from the last decade. As the role of PE evolves, people’s understanding of private equity has also shifted. A publication by Institutional Investor cited EY’s description of private equity as “one of the most profound shifts in the capital markets since the 19th century.”

But A lot has changed in PE over the last couple of years. We narrowed down our findings to two significant changes as highlighted below.

Fewer deals but more cash

One outstanding feature of today’ PE market is the amount of capital available for investment, with dry powder (amount of liquid assets or cash reserves available to an entity) recording new highs. Preqin, a data firm, estimates the presence of about $2.44 trillion of idle dry powder waiting to be invested in various sectors.

Due to the high volume of available capital, PE firms are closing more deals compared to the past years. By the first half of last year, an approximate $256 billion of leveraged buyouts had built up. Refinitiv noted that the figure was sufficient to qualify the first half of 2019 as the second-largest half in record.

A growing interest in middle markets

Another notable change seen in the current decade is a shift by firms to middle markets. Initially, medium-sized companies believed PE firms went only after the unicorns and multinationals. Indeed, nothing could be further from the truth.

The middle markets hold some of the most viable investment deals for PE firms. Despite much of the attention being focused on the large companies, their medium counterparts are presenting a formidable option for investors looking to grow their investments over time.

No doubt the 2010s were some of the most incredible years for private equity. The massive flow of capital coupled with growing secondary markets gave birth to a unique ecosystem for investment growth.

As firms continue to appreciate the importance and potential of middle markets, things are certainly bound to shift upwards.

And with a promising new decade, who knows what the roaring 20s will bring forth?

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