The two words that conjure jet setting globe-trotting careers and power business lunches with the high and mighty have a lot of sweat and toil behind the scenes. Not to mention the intense competition to deploy capital to the highest ROI generating assets and enterprises. Deal generation and successful exits are far between for private equity players, and the constant need to upend other competitors in search of the next decacorn can be quite taxing, and that’s an understatement.
Any doubts that Private Equity is going mainstream as the preferred choice of capital deployment for investors is put to rest with McKinsey’s assessment that the net asset value in the sector has risen by 700% since 2002 - that is twice the speed of global public equities. Private holdings in US corporations numbered at around 4,000 in 2006. By 2017, this number had grown by 106% to just over 8,000. In the same time frame, public, listed companies reported a negative growth of about 16%. Over the last decade, non-traditional asset classes have shown an increased CAGR of 8-10%, spurred by the need for investors to take a more active role in management in the post-recession years.
2018 marked the largest fundraising year in history, despite private equity players growing highly selective about their investments - real estate is still one of the biggest draws, but technology and service sectors have seen a sharp decline in funding - the WeWork debacle was just one in many of the stories that made headlines - So, the need for continuous scrutiny in the overall scheme of maintaining a high performing and diversified portfolio of assets simply cannot be undermined.
Mapping out the private equity landscape across industries, sectors, segments and regions is a no- brainer for most players. While certain asset classes have seen a jump in growth, others continue to provide staid yet steady CAGR and ROI, at the EBITDA stages. Sovereign Wealth managers are also joining the ranks of hedge funds and activist investors to deploy capital wherever sustainable.
Deal generation - An important component in any PE firm’s routine operations is scoping the global markets for deals, either through venture funding, institutional placements or M&As. Being subscribed to consultant organizations is just not enough. Technology enabled assimilation of deal flows and close market analysis is critical for successful deal generation. Remember to scope your target markets and regions, besides following industry peers and having on-ground personnel for possible insights.
Due diligence - This remains the cornerstone of any successful acquisition or any deal, for that matter. The most successful PE player have multiple layers of due diligence for their targets. Due diligence isn’t just a checklist to plow through, however - besides financials, there are several other factors including management profiles, executive boards, risk management and GRC aspects that form the foundation of any acquisition. This is precisely where an eye for detail makes separates the sharks from the spam, and a good PE deal from a blind gamble.
The Buy and Build model has gained a lot of traction in the PE industry, especially in technology and natural resources markets. Active investors and analysts are increasingly using their management and technology skills to grow and expand the business operations and revenue streams for their acquisitions, while aiming for increased efficiencies in the build up to the next phase -
The rise of the mythical decacorn has the PE world drooling over the technology and healthcare sectors, but there are also the Theranos’ of the world to be wary of. 2018 and 2019 may have been muffled years with successful exits plateauing, but that is expected to jumpstart in the current year and also going forward. Exits in multiples are the new normal, according to Bain and Company and timing your exit accurately with the targeted valuation is the final, successful flourish to a well-done deal in private equity.
The global PE deal value of 2018 reached a high of 1.4 trillion USD, which was last seen in the pre-recession era. While institutional and sovereign wealth capital continues to flow towards private equity away from public markets, lucrative careers are waiting to be made. Get on board with the world’s most powerful and valued private equity specific certifications for the jet-setting career you’ve always dreamed of.