Year-over-year deal activity from private equity in the FS sector dropped by approximately 36 percent in 1H20. The drop is largely attributed to the impact of COVID-19 which turned a buying spree into industry-wide panic. Overall, during the first half of 2020, PE remained most acquisitive in countries such as the US (#20), India (#20), China (#8) and the UK (#8) while the ASPAC region saw the highest deal flow (total deals #39). Moreover, PE bidders from the US accounted for 49 percent of the total transaction market in 1H20.
In the coming months, the drop-in valuations could drive PE firms to pursue carve-outs and lead to an acquisition of distressed assets as corporates are expected to sell units to raise capital during COVID-19. Bolt-on acquisition opportunities are likely to rise for their portfolio and for acquiring smaller stakes in firms that are in need of capital.
Financial services, particularly those with balance sheet light business models and strong technology opportunities across lending, insurance, wealth & financial technology remain a key focus for mainstream PE funds. Those funds with specialist credit experience are anticipating intense levels of activity as lenders adjust to the COVID-19 affected economy.
Globally, private equity and venture capital investors envisage a decline in fund-raising activities over the next six to 12 months because of the pandemic. The market is sitting on sufficient un-invested capital and therefore PE investors are expected to focus on segments that are minimally impacted by the pandemic or those with promising opportunities.
Private equity investments have increased in the payments FS sub sectors in 1H20 and continued to remain high for lease finance compared to similar period last year. PE buyers in APAC are increasingly expanding to senior rounds of minority investment in matured digital and payments based FS targets to benefit from subsequent potential listings. Insurance investments by PE players is expected to increase further and distressed funds are looking at unlocking value from NPLs across the banking sector.
Payment targets continued to garner attention from PE firms globally, while leasing and financing remained the preferred target segment in Asian countries and regions such as India, mainland China and Hong Kong SAR.