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Global Private Equity Performance

By Generational Equity

Global Private Equity Performance

Recently Bain & Company (Bain) released its 2022 Global Private Equity Report. Bain is the leading consulting partner to the private equity (PE) industry and its stakeholders. PE consulting at Bain has grown eightfold over the past 15 years and now represents about one-third of the firm’s global business. So, Bain’s well connected to the PE industry and trends impacting it.

As we have discussed in prior posts regarding worldwide M&A activity, Bain data indicates that 2021 was a record year for global PE as well:

By just about any measure, private equity set a remarkable new standard for itself in 2021. Buyout deal value and exits shot to stunning new records. General partners (GPs) had the second-best fund-raising year in the industry’s history, capping a five-year run that has netted $1.8 trillion in new buyout capital.

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As shown above, 2021 saw a huge increase in both deal number and deal value globally. Most importantly, fund-raising, a measure of “dry-powder” or the availability of capital to fund acquisitions 3-5 years out, also grew to record numbers.

Now having said that, the question now becomes what happens in 2022?

While we believe the outlook remains strong in 2022, several important factors will weigh on investors’ minds as they think about doing deals. Covid-19–related issues have increased inflation to levels not seen in the US and other markets in 40 years. Russia’s invasion of Ukraine has dialed up global disruption, causing uncertainty around supply chains, energy prices, and other economic factors, as well as untold human suffering, fear, and panic.

There’s no way to know how these global disruptions will play out, but the reaction from the Federal Reserve and other central bankers will shape current and future deal making. One thing is certain: There are now inflation playbooks developing across the GP and LP landscape as investors race to protect margins and future returns.

Since the report was published, the situation in Ukraine has grown even more dire and the Fed raised interest rates a quarter of a point. Although the interest rate increase simply brought the rate to pre-pandemic levels, the Fed signaled that more increases are probably coming.

As for Ukraine, the global economic waves are still unknown. The reality for U.S. based businesses is that once again North America is the safest region in the world to make acquisitions. The situation in Eastern Europe today sadly only makes that clearer than ever.

Unfortunately, far too often, uncertainty has led to indecision, delay, and a short-term view rather than a longer-term strategy. That is why if you are a business owner in North America today, you need to be sure that PE firms are part of your potential buyer lists. These professional buyers typically do not let short-term disruptions distract them from their long-term view.

Although rising rates will make it more expensive to finance deals in general (thus potentially impacting valuations), these buyers, especially PE firms that focus on middle-market deals, have a five-to-ten year horizon for many of their investments. This means that they know that where we are today is not likely where we will be down the road.

However, this does mean that you need to act soon to either exit before rates go up too high, and/or create a long-term growth plan to ride out these short-term disruptions and build a buyer ready business, no matter what geopolitical events may cause.

Generational is very unique in the middle-market investment banking business. Via our Consulting Team, we work with our clients from the outset to build tactical and strategic plans to grow a business, then work hard to find optimal buyers for our clients, and finally help them with their newly monetized wealth after the sale of their business. Our recent investment in Precocity, a leading technology services firm, adds one more tool in our belt to help our clients sustain long-term growth.

As Bain stated, “There’s no way to know how these global disruptions will play out”. If you would like to find out how our full suite of investment banking services can help secure your future, please reach out to us at 972-232-1121 so we can discuss your specific situation and plans.

And realize that uncertainty also opens doors of opportunity for those brave and wise enough to see them.

Carl Doerksen is the Director of Corporate Development at Generational Equity.

© 2022 Generational Equity, LLC All Rights Reserved

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Andy Graham, Vice President, Modern Heating & Plumbing
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Betty L. Brennan, President, Taylor Studios
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Bryan D. Horn, Owner, Over Under Clothing
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Terry D. Wickman, President, Keytroller
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Terry D. Wickman, President, Keytroller
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Tom Currier, Former President & CEO, Rackmount Solutions
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Larry Moore, Owner, A Company Portable Restrooms
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Bil MacLeslie, CEO, ipHouse
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Robert Evans, President and CEO of Mealtracker Dietary Software
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Ralph Noblin, President of Noblin & Associates
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Eric Erlandson, Owner, Action Fastenings, Inc.
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Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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