EY’s 2021 Global Private Equity Divestment Study, which was released last week, found that the pandemic has accelerated changes in attitudes to factors that are now affecting the valuation of businesses – in particular digitalisation and ESG metrics.
The report looked at how private equity is refining exit strategies for stronger valuations in a survey of more than 100 private equity executives globally. It revealed that 72 per cent of private equity executives say they expect to capture an ESG premium in businesses they are considering exiting, while 51 per cent of private equity firms regard AI as a critical value lever for portfolio companies over the next 18 to 24 months.
“For a majority of buyers, digitalising the business was a key driver. Within that, AI jumped to the forefront,” EY Global private equity sector lead analyst, Pete Witte commented on the study’s findings. Witte leads the firm’s research and analysis efforts in the private equity space.
He continued: “That was really interesting, especially because it beat out the supply chain for the number one spot. And last year was the year of the supply chain where everyone was figuring out what they were going to do with respect to the pandemic, by building increased flexibility around supply chains.”
According to the PE analyst, the power of AI is a value driver in a lot of these companies, something which the report reflected. “PE firms have always been focused on driving the top line, as well as managing their costs where they can. AI checks both of those boxes by reducing costs. It can reduce costs by automating manual activities and those sorts of things, but it can also give you better insights into the health of the business, the data that is going to drive your strategy decisions,” he explained.
In terms of geography, 57 per cent of Asia-Pacific-based private equity firms indicated they are seeking a buyer with a strong ESG record; this figure corresponded to 50 per cent in the Americas; and 41 per cent in EMEA.
“Europe and Asia Pacific both came out strong on ESG. With respect to the Asia Pacific region in particular, it could be a focus on where these companies are in their life cycle. A lot of [ESG] investments tend to be a bit more growth oriented,“ said Witte.
