4 Ways to Stay Competitive in a Tough Private Equity Market


Since 2010, the U.S. market has experienced an unprecedented bull market. All this economic well being has led to significant investment activity, and with it, an increased number of investment portfolios. The global cash reserves for private equity funds has been on an aggressive growth spur since 2012 and has tripled in that period. See the chart below extracted from CNBC, source: Preqin.

The repercussion of such large amounts of cash waiting to be invested is that it brings fierce competition. As new or existing funds compete for deals. This could mean increased valuations due to bid wars which results in overpaying.

In this market, the pressure for closing deals is obviously high. This urgency could lead to glancing over key details of the target acquisition. The results of which, are unanticipated costs of integration, inheriting liabilities, and not fully understanding the risks or potential of the business.

For private equity funds to remain competitive in this kind of market, there many things that need to go well. Some are beyond their control, and others are not. Here is a list of essential elements that would help:

  • Create a strong due diligence process – Create a robust process that includes quantitative and qualitative analysis for a clear understanding of the business’s upside, risks, and opportunities to gain efficiencies.
  • Having a strategy for each acquisition – Whether you are industry-specific or industry-agnostic, there should be an entrance, growth and exit strategy for each of your portfolio companies.
  • Improve the business – For acquired companies, there should be several opportunities to gain efficiencies, as uncovered during your due diligence process. Create an implementation plan to leverage those opportunities.
  • Partner with the leadership team – The leadership team should be considered partners in the transaction. They are the ones that set the strategic direction for the business and manage the day-to-day execution. Ensure you have a strong and cohesive leadership team.

We will expand on each of these points further on future posts. Stay tuned for a series of upcoming blogs detailing actionable insights.

If you have a sense of urgency to improve the perfromance of portfolio companies, schedule a call to discuss how we can help.

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