Private market valuations are adjusting amidst public market declines and war in Ukraine.
Nine in 10 growth investors view M&A as an attractive growth strategy for portfolio companies in the current environment.
Two thirds of growth investors surveyed expect to broadly maintain volume of new private market investments this year.
Investors plan to increase scrutiny of cash burn and anticipate the return of deal structure and non-priced rounds.
As part of a post-COVID rotation, investors are prioritising capital efficient SaaS and FinTech models, and de-prioritising short-term COVID beneficiaries.
Numis research reveals most growth investors expect leading private companies can limit valuation pressure and extend competitive advantage as selectivity increases.
LONDON – 4 APRIL 2022: With geopolitical tensions compounding an already volatile market backdrop, investors see turning points in private markets dynamics, as valuations adjust and investor discipline strengthens, according to new research from Numis, the independent investment bank.
Against the current backdrop of macroeconomic pressures, Numis surveyed 25 of the world’s leading growth investors, including Softbank, Andreessen Horowitz and TSG, for unique insights into the prevailing sentiment within private markets. While the survey reveals a changed environment for raising growth capital, it also highlights that global growth investors and LPs remain engaged, with plentiful capital to deploy, as they pursue attractive returns and disciplined processes.
The research revealed that growth investors are anticipating turning points in private market dynamics, especially when it comes to valuations in the coming 12 months. 70% believe the buoyant private market conditions of last year have moderated, and 95% expect valuations for private companies to adjust accordingly in the coming year. The degree to which sentiment has shifted from last year is stark, evidenced by the fact that when asked the same question in Q421, 70% of respondents expected valuations to remain intact or increase.
That said, while valuation pressure will be widespread, it will not be indiscriminate. Six in 10 growth investors expect leading companies to limit valuation pressure in the coming months.
The investors surveyed were also near unanimous on their outlook for M&A, with nine in 10 viewing it as an attractive growth strategy for portfolio companies. With softer public markets limiting exit horizons, investors anticipate a greater opportunity to target previously inaccessible companies. Numis’ recent M&A Survey also highlights incumbents’ appetite for consolidation. That survey found that 86% of FTSE 250 directors expect to undertake M&A in 2022.
Despite pressure on valuations and a constrained exit environment, Numis’ survey indicates that LPs’ appetite for private market allocations remains robust, with dry powder and scope for returns underpinning allocations. While crossover funds prioritise listed opportunities, two thirds of the growth investors surveyed said they were still expecting to make a similar number of new investments in the next 12 months as in the past year.