While different predictions are made about how the global economic recovery will take shape after the COVID-19 crisis, the lessons learned from the global financial crisis help the industry adapt to today's environment.
As IFCC, it has been in close contact with brokers and CFOs to reveal the expectations and near-term plans of senior company executives for the economic outlook.
In February 2020, the longest-running bull market since World War II was losing momentum, and some macro indicators were pointing to an approaching economic slowdown. In this environment, 40% of the private equity companies participating in our research predicted that there will be a recession at some point in the year. In addition, 16% of respondents thought a recession would come in 2021. However, as the effects of the pandemic began to be felt all over the world in mid-March, the rate of participants predicting a recession rose to 95%. As of today, with the start of the normalization process, it is currently being discussed how the global economic recovery will take place.
Due to the course of the pandemic and the consequent conditions defined as the 'new normal' in supply chains and ways of working, it is highly probable that ups and downs will occur in the recovery process and will take place over longer periods of time.
When we look at the outlook for M&A activities, we see that private equity funds companies foresee a slowdown in the upcoming period. The stagnation of credit markets and the limitation of field visits are most effective in this regard. In the first quarter of the year, there was a 10% increase in transaction activities across the global private equity funds sector compared to 2019; The vast majority of transactions took place in the first six weeks of the year. In April, while the new transaction with a total value of only 4 billion dollars was announced, there was a sharp decrease of over 90% compared to the previous year.
Therefore, we can say that we are in a period where cash is more important than ever in the markets.
In the past weeks, we have observed that private equity fund companies have focused on their portfolios and solved the emerging problems on a portfolio basis. It became important to turn to alternative sources in supply chains and, more importantly, to ensure that portfolio companies have access to liquidity during the stagnation period in the credit markets. In the coming months, companies in the sector will focus on utilizing the new opportunities that arise in this period. In an environment where valuations are declining significantly, private equity funds firms can also play a vital role in providing capital to firms facing different challenges.
We observe that private equity funds companies are actively investing in assets that are already publicly traded; They make loan investments and take minority stake positions in companies with high transparency. In the near future, we anticipate that private equity funds companies will turn to more traditional acquisitions, with site visits and the elimination of bottlenecks in financing larger-scale transactions in the transaction markets.