Private Equity Insights – Industry Trends and Predictions

Livingston James’ Private Equity expert Sophie Randles reviews the last 18 months in private equity and discusses the future trends and predictions for the industry.

Over the last 18 months there has been significant and unprecedented change and upheaval, private equity firms and investors have had to adapt rapidly to sudden and constantly changing economic conditions and cultural and political norms. Private equity fundraising and M&A activity almost came to a complete standstill in April/May of 2020 however, surprisingly rebounded in the second half of 2020. This pent-up demand sought new opportunities which continued at pace into 2021 and into 2022.

Ansarada’s Top UK Dealmakers’ M&A Predictions 2022 report, which polled senior executives from 50 UK-based firms across investment banking, private equity and M&A, reveals that 90% of respondents believe that the number of M&A deals in the UK will increase in the next 12 months, with 54% believing that activity will increase significantly.

Trend Insights

New Opportunities

The ramp up in activity has resulted in new opportunities and reshape of current teams and funds. Investors are now placing new emphasis on sustainable investing and finding new vehicles for portfolio company exits.

Portfolio Companies

Since the pandemic hit in early 2020, many PE firms have stepped up to support their portfolio companies in myriad ways. Portfolio companies—especially smaller ones—seem to appreciate PE’s management input and industry connections as much as the capital they provide. Additionally, there appears to me more open mindedness from family-owned businesses regarding allowing capital support from private equity.

Search & Selection Process

Investors are now placing greater attention to robust search and selection / people due diligence processes to further mitigate the risk of the wrong hire (particularly when the world went virtual). This form of due diligence has started to move up on the priority list.

Building Diverse Teams

As portfolio companies look to form partnerships with their PE providers, building relationships and demonstrating industry expertise have become more important than ever. One way for PE firms to excel in this regard is to focus on building diverse teams and boards. This can also be seen re the relationship between the houses and the institutional funds – real importance is being place on the creation of diverse deals teams; almost a prerequisite now for some of the institutional funds to lend money

Focus on Net Zero

According to the British Private Equity and Venture Capital Association, investors could play a key role in helping businesses to transition to net zero. They are, it says: “well placed to drive change in business. By working closely with management and supporting a business with capital, expertise and networks, investors have demonstrated that they can drive improved growth and profitability for companies of every size and stage, across a very wide range of sectors and geographies.” This is an area with high levels of chatter and is high up on the agenda for all businesses which is attracting new start-up funds and vertical and specialist functions creation.

The number of M&A deals in the UK is expected to rise significantly in the next 12 months as part of a return to post-pandemic normality. With fundraising continuing to show strength, the challenge for the private equity industry in 2022 may not be about economic conditions and rather about navigating the socio-political uncertainty.

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