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COVID-19 dampens US private equity deal-making, fundraising activity in Q2

U.S. private equity deal and fundraising activity slowed during the second quarter as the coronavirus pandemic and consequential lockdown took its toll.

Transactions

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Entry deal volume plunged 42.3% year over year to 932 announced transactions in the second quarter. This was also down 33.8% from 1,407 deals in the three months to March 31, according to S&P Global Market Intelligence data.

Gross transaction value for private equity entries totaled $26.09 billion, down 55.8% from $59.02 billion a year earlier. Quarter over quarter, gross transaction value fell 47.3% from $49.50 billion.

Add-ons also declined compared with the 2019 second quarter. A total of $18.62 billion worth of deals across 502 transactions were announced in the three months to June 30, compared with $118.40 billion across 913 transactions a year earlier.

Noting a bifurcation in the market, U.S. private equity firms are playing the long game when it comes to executing deals, with bolt-on transactions likely to be most abundant in the first wave of dealmaking.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

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Sector focus

The IT sector remained the market of choice for U.S. private equity firms, with 955 deals worth a total of $23.49 billion signed as of the end of the second quarter. The second and third most active markets for entries were the healthcare and industrial sectors, with 476 and 242 deals announced, respectively.

By gross transaction value, healthcare took the second spot at $15.40 billion, followed by communication services and industrials, at $13.73 billion and $8.41 billion, respectively.

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Fundraising

The anticipated fundraising slump took full effect in the second quarter, when 225 funds closed having raised an aggregate $116 billion. This compares with a total $150 billion raised by 425 funds in the same 2019 period. Dry powder continued to grow, standing at $1.48 trillion at the end of the second quarter, compared with $1.41 trillion a year earlier, according to Preqin data.

Insight Partners' growth strategy platform, Insight Partners XI LP, was the largest fund to close in the quarter, bringing in $9.50 billion from investors. Francisco Partners Management LP's buyout fund, Francisco Partners VI LP, followed with $7.45 billion in capital commitments. Clearlake Capital Group LP raised the third-largest investment vehicle to close in the quarter, pulling in $7 billion for its special situations fund Clearlake Capital Partners VI.

Thoma Bravo LLC and Silver Lake Management LLC launched their buyout funds in the second quarter. Thoma Bravo Fund XIV LP is targeting $16.5 billion, and Silver Lake Partners VI is seeking $16 billion from investors. Clayton Dubilier & Rice LLC is also fundraising for its North America-focused buyout fund, Clayton Dubilier & Rice Fund XI LP, which has a $13 billion target, according to Preqin.

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