Can private markets boom if public markets bust?
Firms have more opportunity for partnerships New research from EY Global. Visit here.
Competition drives the evolution of operating resources
NEW YORK, Jan. 30, 2018 /PRNewswire/ — As the private equity (PE) market continues to evolve 10 years after its 2007 peak, firms are seeing that the implementation of digital technologies have a dramatic impact on the ways that PE firms organize and execute at the firm level, according to the EY Global PE Watch 2018 report. These technologies include robotic process automation (RPA), artificial intelligence (AI) and the Internet of Things (IoT) and are having an intense effect driving value across firm’s portfolios.
Herb Engert, EY Global Private Equity Leader, says:
“While there are some similarities today to 2007, PE as a sector has undergone a significant transformation. Not only have the industry’s assets under management grown more than 80% over the last decade, but the way it drives value has evolved as well, with PE firms employing a wide range of models and resources to drive operational value creation.”
Helping their investees drive operational value creation and execute a holistic digital approach to their entire business is increasingly one of the most significant value drivers for PE firms of all types, regardless of their sector specialization, geography, strategy or size.
Ten years ago, the number of potential deal partners was far smaller than it is today; however, as limited partners (LPs) look to deploy more assets in private investments in cost-effective ways, interest and involvement of many institutional investors in co-investment and direct investment is increasing, giving PE firms more choices than before. During this time period, for example, club deals involving two or more PE sponsors accounted for 66% of all PE megadeals (deals of US$5b and larger). Today, about 33% of such deals are club deals; far more common are deals involving family offices, corporates and pension funds. Partnering with these entities provides a growing opportunity for PE firms to add value in today’s evolving market.
Look first to ‘industry expertise’
According to the report, when looking for new ways to partner, PE firms should look first to customers, including pension funds and family offices with specific industry expertise, speed to execute deals and the ability to add value to a deal in ways that other financial sponsor can’t. Firms should also look to partner with competitors as strategic investors. The investors can provide firms with the ability to leverage synergies and the ability to achieve larger deal sizes without forming a PE consortium where alignments may be more difficult.
Engert says: “A decade ago, operating resources were concentrated at larger firms. In the past few years, small and mid-market firms have been increasingly catching up. As firms look to more systematically and comprehensively create operational value, they should look at working with senior industry executives on a full-time or part-time basis and hiring outside functional experts with deep expertise across a range of competencies.”
Excerpts from the report: Can private markets boom if public markets bust?
Can private markets boom if public markets bust? Private equity is in a unique position to fuel growth. Our EY Global PE Watch 2018 reveals what executives need to know.
Since the last economic downturn, private equity (PE) has seen record-setting growth. Indeed, the industry’s assets under management have grown nearly 80% over the last decade, reaching roughly US$2.7t. The sector’s role in the economy continues to grow. PE firms now own stakes in more than 13,000 companies across the globe. They employ more than 20 million people, and for each additional million dollars they invest, they create an additional 10 jobs.
With the days of financial engineering of investments gone by, and a growing need for value creation through transformative growth strategies, PE is now in the unique position to fuel positive equity. The EY Global PE Watch 2018 explores the possibilities and reveals what boards across industries need to know to position their companies for growth.
Despite the rising prominence of PE, there is significant room for even more growth. While the gap is narrowing, the value of PE portfolio companies is estimated to be equivalent to just 3% of the US$81t in publicly traded shareholder value.
Meanwhile, the universe of public companies is shrinking. In the US, for example, the number of listed companies has declined by 50% over the last 20 years. Thus, the opportunities for private companies to remain private is growing dramatically, driven in large part by widespread experimentation and innovation within private capital.
There are still a number of critical similarities between the PE industry of a decade ago and now – most notably, PE’s “secret sauce,” its model of concentrated of ownership and the alignment of stakeholder interests. However, the industry has transformed in other important ways that can represent significant opportunities for savvy companies and their boards.
The complete report is available here.
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Private equity firms, portfolio companies and investment funds face complex challenges. They are under pressure to deploy capital amid geopolitical uncertainty, increased competition, higher valuations and rising stakeholder expectations. Successful deals depend on the ability to move faster, drive rapid and strategic growth and create greater value throughout the transaction lifecycle. EY taps its global network to help source deal opportunities, and combines deep sector insights with the proven, innovative strategies that have guided the world’s fastest growing companies. Our clients discover powerful new ways to create unexpected paths to value — generating positive economic benefits for both investors and society. That’s the power of positive equity.