Dania Zinurova is the Portfolio Manager for WAM Alternative Assets.
2020 began as a slow year for private equity players globally with minimal deal activity. Towards the latter half of the year, we saw strong demand in sectors such as logistics, healthcare and technology, benefiting from structural shifts which accelerated during pandemic.
Special Purpose Acquisition Companies (SPACs) raised a record USD82.1 billion as at December 2020, a sixfold increase from 2019, according to data from Dealogic. SPACs are so called “shell companies”, with no actual commercial operations, and are created for raising capital through an initial public offering to acquire an existing company. We are now witnessing strong demand from investors to allocate capital in pre-IPO companies, and with decreasing deal flow in the more traditional venture capital and private equity space, SPACs served a purpose of accessing those deals through a more blind pool portfolio.
The listings in 2020 mainly took place in the US and Asia. We expect that there will be some recapitalisation opportunity, especially for businesses in sectors which were challenged by the pandemic. Those businesses now need to repair capital structures as government support slows. 2020 proved that businesses with a healthy capital structures are better positioned to grow than those which need repair.
Another factor to consider is that pre-2020, the Australian market has experienced increasing inflows of foreign capital in private equity deals, mainly supported by Asia Pacific players with capital coming from Hong and Singapore. By 2019, approximately 60%-70% of the private equity deals in Australia were funded by those cross-border transactions, however, last year, due to COVID-19 and travel restrictions, those deal activities slowed down. We have begun to see inbound enquiries increase again, which supports our expectation about increasing deal flows. 2021 is expected to present some of the strongest opportunities in decades for those investing in private equity, both from a valuation and volume perspective.