The private equity market paused for breath in 2022 with deal flow, fundraising and valuation multiples all retreating from their post-pandemic highs.
The year was effectively a tale of two halves, which started much as it had left off in 2021, before market sentiment soured in the second half. This was due to rising inflationary pressures and a corresponding increase in the cost of capital, which hindered access to traditional financing markets.
Against this backdrop, investors became increasingly prudent with regard to valuations and deal structures, while increasing their focus on asset quality and cashflow generation.
Global deal flow declined almost 40% in 2022 from its record levels a year earlier, to an aggregate value of $700 billion, while fundraising also slowed significantly.
Beyond the headline numbers, however, the picture was less dramatic. The value of deals in 2022 remained the second highest in the past decade, and the fundraising slowdown followed several record years. At year-end 2022, sponsors held more than $1 trillion of dry powder, which they will be able to deploy when financing conditions improve.
The market conditions also proved a boon for providers of secondaries and direct lending capital, both of which saw increased demand as more traditional exit and financing routes faced challenges.
Against this backdrop, ADIA's Private Equities Department (PED) drew on its ability to invest across private capital products and structures, enabling it to pivot and access the most attractive risk/returns, in keeping with its targeted portfolio allocations.
PED's commitment of new capital in 2022 was divided roughly equally between direct investments and funds, alongside an increased allocation to secondaries. In total, the Department completed 24 direct investments of more than $150 million across its core regions and sectors of specialisation, in line with 2021.
In Industrials, PED supported the combination of MHS Global and Fortna, which created a market leader in e-commerce and logistics automation. It also acquired a stake in Emerson's Climate Technologies, a leading player in HVAC and refrigeration end-markets.
In Financial Services, the Department continued to focus on multiple themes, including insurance brokers and digital transformation, while remaining mindful of valuations in the sector. During 2022, PED led the funding round of Acrisure, a leading insurance broker, to support its value-accretive acquisitions and grow its tech-enabled solutions. It also invested in Merchants Fleet, a leading provider of fleet management services.
The Consumer sector had a more difficult year as macro-economic headwinds dented sentiment, particularly within discretionary businesses. Despite this, PED remains optimistic on evolving themes in the sector and continued to seek out resilient businesses with multi-dimensional growth plans. For example, PED invested in AmeriVet, which partners with veterinarians across the U.S., and in McWin, a platform of European quick service restaurants.
Healthcare remained a key area of focus, particularly in China where PED completed investments in American Sino, a provider of premium private healthcare services, Taibang, a provider of blood-plasma products, and early stage biotech company Sironax.
PED was also active in India, completing four direct transactions in areas with strong growth potential. These included financial services businesses IIFL Home Finance and Aditya Birla Health Insurance, and others with differentiated offerings such as generic drugs company Intas Pharmaceuticals and Dealshare, a social commerce platform.
As the year progressed, public markets repriced faster than private markets, prompting an increase in take-private transactions. In Technology, PED made large investments in the take-privates of Coupa, a global platform for business-spend management solutions and Zendesk, a provider of software for customer service management.
Meanwhile, the Department was able to take advantage of the market's capital scarcity to support and invest in new secondaries and direct lending platforms.
In other developments, PED continued to expand its Operating Advisors network. This proved particularly useful in an unsettled economic backdrop, in due diligence, portfolio management activities and digital transformation.
Looking ahead, PED is positioning for the continued growth of private equity markets including private credit as an increasingly important alternative to traditional bank lending.
In keeping with its mandate, PED will continue to support its existing platform investments by funding opportunistic tuck-in and transformative acquisitions. It will also pursue new attractive risk/return opportunities across its focus sectors and geographies, leveraging its close partnerships and its ability to act as a provider of capital solutions at scale.
