There are more than 2,000 private equity managers currently in the market seeking capital, including some of the most prominent funds. With competition becoming ever more fierce, established PE firms run by savvy CEOs such as Stephen A Schwarzman of Blackstone, Henry Kravis of Kohlberg Kravis Roberts & Co, and smaller, though aggressive firms, such as Ted Virtue's MidOcean Partners, remain fiercely driven and keen on honing their competitive edge.
MidOcean Partners, for example, employs a sector-focused investment strategy coupled with a relationship-oriented management methodology. The firm adds value to each portfolio company by providing input into long-term strategic direction, operational insight, organic growth opportunities, and strategic acquisition ideas.
Specialisation and niche-focus will be one of the key trends this year, according to Antoine Drean in his article for the Wall Street Journal. “Polls carried out this past fall among the more than 900 limited partner firms that are members of Palico… reveal that 89 per cent of investors believe increasing specialisation is ‘the future of private equity,’ while 60 per cent said a majority of their annual PE capital commitment would probably go to sector specialists, rather than generalist funds,” wrote Drean. “Investors are increasingly finding the most promising opportunities in niches with relatively few competitors.”
All in all, industry experts have a pretty bullish outlook when it comes to private equity this year. Lawrence Delevingne of CNBC even goes as far as calling it a ‘boom time’.
“Deals are happening virtually daily. Money from pensions, ultra-wealthy families and other investors is pouring in. Credit is cheap, making levered purchases of companies relatively easy. And businesses are being sold by PE firms at lucrative prices,” wrote Delevingne. Steve Judge, head of the Private Equity Growth Capital Council, stated that there are positive indications for a strong 2015. "Within both the private equity environment and the broader economy, there is enthusiasm for investment and putting capital to work in the coming year.”
Indeed, the Private Equity Growth Capital Council recently revealed that a third of the key movers in private equity believe that the US economy is headed in the right direction. The respondents in the online poll conducted comprised of mid-to-senior-level private equity professionals and more than half of the participants (55%) expect the investment environment to be favourable over the course of the next twelve months.
William Alden for New York Times Deal Book reported that “[t]his year, investors are expected to receive about USD479 billion in distributions from private equity funds worldwide, nearly 40 per cent more than in 2013, according to an estimate by Triago, a private equity advisory firm.” Alden also noted that Triago expects private equity funds to attract $450 billion in fresh capital from investors this year, a substantial 7.4 per cent increase from last year.
Delevingne pointed out that, according to data tracker PitchBook, 2014 saw PE funds invest nearly USD1 trillion over 5,305 deals, the highest total since 2007. “Funds also netted a record USD445.7 billion on their 1,671 ‘exits’ of companies through a sale or initial public offering, up 46 per cent from 2013. And PE funds still have about USD750 billion in so-called dry powder – cash on hold to spend – today.” He quoted Adley Bowden, senior director of analysis at PitchBook, who said in a recent statement: "We expect 2015 to be even more active for private equity investors as they continue to adapt to these conditions and the tail winds of significant dry powder, active M&A market and recovering economies help drive deals."
There are those however who are taking a more conservative route when it comes to predicting PEs’ outlook for 2015. “High valuations of businesses and the prospect of rising interest rates finally had an impact on the confidence of private equity firm executives, according to a new survey that shows PE professionals are expecting the pace of deals to slow down this year,” reported Shasha Dai of the Wall Street Journal. “More than 40% of 125 senior executives responding to the survey sponsored by consulting firm BDO USA LLP reported closing more than five deals in 2014, but 8% expect to do so in the next 12 months. A majority of respondents, or 87%, expect to close between one and five deals this year, with the largest percentage of respondents, 30%, predicting they will close two new investments in 2015.”
“Their projections for deal flow are consistent with the fund managers’ view of the current deal environment, according to the survey, BDO’s sixth annual Perspective Private Equity Study, conducted in partnership with data provider PitchBook Data Inc.,” wrote Dai. “About 56% of the respondents characterise the markets as either very or somewhat favourable, down from 72% of managers who said so for 2014. Another 36% of respondents said today’s environment is somewhat unfavourable, compared with 24% who said so a year earlier.”
BDO in a news release regarding the survey results had this to say: “Private equity experienced a big year in 2014, as the availability of cheap debt, overhang of dry powder and relative optimism about the US economy contributed to a high volume of deal flow… While signs are still positive for 2015, fund managers are cautious, eyeing currently high price multiples, potential interest rate hikes and ongoing competition from strategic buyers as factors that could impact deal flow in the year ahead.”
