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US private equity firms facing competition from global markets

Private equity firms in the US are facing increased competition from foreign and international firms for investment opportunities within the US market, according to the 2012 Global Private Equity Report by Grant Thornton International.

Now in its second year, the report is the result of 143 in-depth interviews with senior private equity practitioners around the globe. It provides insight into private equity general partners’ expectations for numerous aspects of the fundraising and investment cycle during the next 12 to 36 months.

According to the survey, North America is among the top three regions for investment by private equity firms in the next two to four years, with 76 per cent of respondents identifying it as such. In addition, 91 per cent said they would be investing in the MENA (Middle East North Africa) region, while 71 per cent identified the BRIC (Brazil, Russia, India, China) countries as an investment opportunity.

Similarly, the survey shows that 43 per cent of respondents plan to open an office in North America in the next two to three years, while 40 per cent said the same about MENA, and 28 per cent plan to do so in the BRIC countries.

In fact, regarding the strongest competition for deals in the next 12 months, 18 per cent of North American respondents cited foreign/international private equity firms, far more than the 31 per cent attributed to trade buyers.

When asked if they expected the level of investment in their region to increase, decrease, or stay the same, nearly 60 per cent of respondents in North America said “increase,” compared to 60 per cent of those in MENA and nearly 40 per cent of those in the BRICs.

“North America, and the US specifically, is a far more mature investment market than others around the world, so it’s not surprising that there is increased interest from global PE firms to invest here,” says Carlos Ferreira, a partner in transaction advisory services of Grant Thornton. “PE firms here have to realise that they’re not the only ones invited to the show—they are going to have to figure out a way to thrive despite this growing competition from foreign investment firms.”

With a global economy that has been hampered by European debt crises and US recessions, it is not surprising that respondents are still cautious about the fundraising environment. In fact, 20 per cent of respondents in North America described their outlook about the current fundraising environment as positive. It was actually the most optimistic region, with only respondents in MENA coming close. Of the other regions, six per cent of Asia Pacific respondents, nine per cent of European respondents, and eight per cent of those in the BRIC described their outlook as positive.

One thing North American respondents are not as optimistic about is the perception of the private equity industry overall. Nearly 65 per cent of respondents believe the image of the industry is deteriorating, far more than their global counterparts. In fact, in the MENA region, more than 50 per cent of respondents believe the image of the industry is improving, likely because it is still a burgeoning industry. Even so, image is not a concern for respondents around the world. Instead, they consider the biggest challenges to be regulation (34 per cent), macro economy (34 per cent), competition (24 per cent), and fundraising/IR (20 per cent).

“From a global standpoint, this is an interesting time for the PE industry,” says Ferreira. “There are global markets that are emerging as serious players in the game. Yet, there is still plenty of opportunity for US PE firms to make the right investments and be successful.”

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