New Feature: The View from our Professional Advisors - White & Case

New Feature:  The View from our Professional Advisors - White & Case

November 25, 2020



Interview with White & Case partner Gary Silverman: 

Gary Silverman is a partner in White & Case’s M&A/Private Equity group and is based in Chicago.

How has PE fared in this extraordinary year so far?

COVID-19 has certainly had a significant negative impact overall. Global value figures were already trending down in Q1 and they plummeted in Q2. But PE came roaring back in Q3, with value rising 150% compared to the previous quarter—and almost 50% compared to Q3 2019. In fact, Q3 2020 was one of the highest value quarters on record. Value is unlikely to be as high in Q4.

What drove the surge in Q3?

Exit value took off, more than doubling the value recorded in Q3 2019, even as the number of exits fell by 30% compared to Q3 2019. Buyouts were up, too, but not nearly as much. The rise in exits may be surprising, given that exit activity tends to slow during economic downturns as valuations of portfolio companies fall and firms are reluctant to sell.

So portfolio company valuations have held up so far this year?

It depends on the sector. Tech, media and telecom (“TMT”) were the most active sectors for PE investment in 2020. That’s not surprising. TMT was also the most active sector in 2019 and the crisis has only increased the importance of technology. As communities adapted to lockdown, they looked to digital solutions to carry out everyday tasks—particularly in the fields of work, health, education and entertainment. Demand for digital solutions has resulted in a steep rise in the valuations of tech firms. PE firms have exited tech investments to capitalize on high valuations, but PE remains very interested in buying software companies as well, especially given the trend toward accelerating digitalization.

How are SPACs affecting the market?

SPACs have rocketed this year. There were 192 SPAC IPOs so far in 2020—which represents more than 50% of the total number of IPOs—and together they raised $67 billion in proceeds. That may seem minor compared to the $1.45 trillion that PE firms had in dry powder as of June 2020, but SPACs are very aggressive suitors. They have less time to find deals compared to traditional PE funds, and their sponsors have enormous economic incentives to get deals done. SPACs are paying very substantial multiples for deals, and they’re willing to merge with very early stage companies, even pre-revenue companies. That makes them competitors to traditional VC and growth equity funds as well as buyout funds.

So SPACs are competitors for PE firms. But is there also a SPAC opportunity for PE?

Absolutely, on both sides of the table. SPACs present a viable alternative to an IPO or outright sale for portfolio companies. In addition, a number of prominent PE funds and a host of independent sponsors have raised SPACs. Some of the largest PE fund managers—including Blackstone, Apollo and Clearlake—have raised SPACs as separate investment vehicles. A smaller fund could directly sponsor a SPAC as a fund investment, with the SPAC using the IPO proceeds to pursue deals that are much larger than the fund would normally be able to consummate. The smaller fund could do this without any conflict of interest for the fund managers because it would be the fund itself (and not the managers) sponsoring the SPAC.

Do you see the SPAC boom continuing?

The SPAC market runs in cycles. In the past, after hitting rough patches, SPACs have adapted by changing their structures and terms to make them commercially acceptable to potential targets. That happened most recently after the 2007 peak, and SPACs have been seriously ramping up since 2017, leading to the boom in 2020. But as often happens during boom times, some less qualified sponsors have raised SPACs and gotten deals done that will prove to be bad investments. There has already been some noteworthy litigation calling into question the level of diligence by SPAC sponsors. There will be some weeding out. The ultimate test is whether returns are strong and reliable enough (especially for the initial SPAC and PIPE investors through the lock-up period) to continue to attract robust investment in this asset class.


Any views expressed in this publication are strictly those of the authors and should not be attributed in any way to White & Case LLP.