From what we are seeing from our clients and research sources plus hearing about in the marketplace, here are some trends in the private equity industry now (mid-year 2018)
- The two most important factors in Private Equity activity is economic strength and so-called “dry powder” levels. When people have money to invest and the economy is good, activity is high. That seems to be the case in 2018.
- Most Private Equity Groups (PEGs) expect to see more equity in 2018 transactions (less leverage) than from earlier years.
- For debt, favorable terms (covenant-lite) is the most important consideration. More important than low rates.
- De-Regulation and tax policy are relatively unimportant in driving activity.
- PEGs say operational improvements is the most important reason for driving a deal. Add-on acquisitions and new deal sourcing tactics were also cited.
- The largest challenges to PEGs are high transaction multiples (valuations) and lack of investable companies. I have repeatedly heard complaints about the latter over the years so this seems to be a common gripe regardless of environment.
- Most PEGs have no industry specialization. The most common specialization when one is mentioned is Technology followed by B2B.
- The most common investment strategy is Restructuring/Distressed companies followed by Growth/Expansion.
- The most common exit is forecasted to be selling to a strategic buyer.
- North America continues to be the most active geographic region, with the highest level of optimism.
- Most deals are sourced primarily through personal networking, followed by Industry events.
- About half of all PE firms are planning on raising a new fund in 2018. Most are targeting a larger fund than what they managed previously. A substantial portion of PEGs are looking to raise a fund 50% larger than what their last one.
