Good vibrations
BDO Corporate Finance's latest Private Equity survey was released at the beginning of the month. It polled the views of Private Equity Houses and their portfolio companies, and found some welcome positivity on both sides.
Key findings included:
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• 96% of private equity backed companies said that their private equity investors had improved or not affected performance. The main reason cited was the expertise and support provided, followed by access to capital. Only 4% suggested that performance had been harmed.
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• 69% of respondents agree that the main focus of management over the last 12 months has been organic growth. 75% predict that this will also be the main focus for the next 12 months.
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• Furthermore 74% of companies surveyed currently consider themselves as being on a growth trajectory.
The survey shows that private equity houses are actively seeking investment opportunities. An overwhelming 94% of private equity respondents believe that now is a good time to invest, and a further 96% agree that the rate of investment activity will increase or at least stay the same over the next 12 months.
The increased appetite has been stoked by several years of low activity and the pressure to deploy capital from existing funds. Investment appetite also appears to outweigh the availability of businesses to invest in since three quarters (76%) of private equity houses state they would be prepared to pay a scarcity premium to acquire a good business in the current market with two thirds (65%) of these prepared to pay a premium of 15% or more.
Overall, this appetite is driven by hopes that opportunities exist in backing distressed businesses that could benefit from investment, a backlog of private vendors looking to exit in addition to sales of historic investments from private equity funds that have been stalled by market turbulence and uncertainty.
There is also evidence to suggest that tastes are converging. Business Services is emerging as the sector that private equity professionals expect to attract the most investment attention over the next 12 months. Technology is also in favour, however consumer focused investments, perhaps understandably in the current climate will be more selective.
Other findings included:
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• 71% of PE houses' current investments are on target or are ahead of achieving the original plan.
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• Bolt-on acquisitions are expected to be made to nearly half (49%) of all companies surveyed. 81% of the corporate respondents who have made bolt-on acquisitions in the past confirmed that these acquisitions have added value.
Alex White continued: “It is encouraging to see that even in the current uncertain climate Private Equity houses are managing to successfully steer through their plans. The steady stream of strategic bolt-on acquisitions for certain investments are fuelling deal activity and providing value.”
