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.
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.
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Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.Bryan D. Horn, Owner, Over Under Clothing
Dear Chris and Andre, I just wanted to say thanks for all your help. Even though this process was not an easy one, it was comforting to know that I had a capable team standing beside me. You made me feel like we were almost your only client or at least the most important one. Thanks again, and I will recommend your service in the future.Shenille Engelhart, Owner – CLS Technology
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!Eric Erlandson, Owner, Action Fastenings, Inc.
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
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We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
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