Business leaders see no private equity growth over next 12 months, report says

The report, Private Equity – Perception and Reality, was conducted online with senior executives in the US, Europe, Africa and Asia-Pacific region. While nearly three quarters (70 per cent) of respondents recognised the beneficial impact of private equity investment, they say that the market will not grow at all over the next 12 months and that it will grow ‘only a little’ for two years after that.

Although the credit squeeze (71 per cent) and economic uncertainty (68 per cent) were cited by most respondents as the major cause of the private equity slowdown, those from Africa and Asia-Pacific see this as having significantly less of an impact than those in the US and Europe.

According to McKinney Rogers, this suggests that private equity firms could conclude a greater proportion of deals in Africa and Asia-Pacific and raises the prospect of even less business investment in the US and Europe, where the credit squeeze has already hit hardest.

Questioned on the magnitude of the problems facing organisations that want to use private equity as a means of funding their business, nearly 80 per cent point to a lack of available cash – especially within Europe – while all regions agree that private equity firms will now be very selective about the deals they do.

American respondents regard employee resistance to private equity funding is a large problem by comparison with the other regions. Potential problems with trade unions are also a consideration, cited by more than one-third (37 per cent), with Africa in the lead.

‘The results of this research highlight that without significant growth potential to rely on, the emphasis of private equity firms should now be on managing and running the companies and assets that have already been acquired,’ says Richard Watts, regional partner for Europe at McKinney Rogers.

‘This switch in emphasis from transaction to management skills is at the heart of the changed environment that private equity funds now face, and success in making this transition is likely to define the industry’s winners going forward.

‘A significant challenge for any acquirer of a business lies in understanding how to get to grips with and where appropriate, change the leadership, strategy and business culture of the company. It is vital that teams have clarity of vision and are set guidelines and performance expectations, as well as tangible reasons for working to this standard.

‘By understanding what is expected of them while being given the freedom to execute missions in the way they best see fit, a sense of ownership is developed, leading to an increase in motivation and performance. Well over half – 53 per cent – of respondents highlight the worth of management expertise that private equity firms can bring to companies, and it is these skills that firms need to build on now to gain a competitive edge.’