In this year’s Private Equity Roundtable, Corporate LiveWire spoke with six experts from around the world to discuss recent Private Equity developments in their jurisdiction: Alexandre Prost-Gargoz, Nathan Cahill, Simon Burns, Joachim Habetha, Christopher Elvin and DealMarket CEO, Urs Haeusler.
Highlighted topics include: the differences between public and private market composition; the increase in cross border opportunities; and the impact of regulatory changes such as the Alternative Investment Fund Managers Directive (AIFMD) in Europe.
Download the full Virtual Round Table – Private Equity 2015 report.
What impact have the record low interest rates had on the private equity industry?
Urs Haeusler: With more debt easily available to companies that would normally turn to PE for funding, we’ve seen companies borrowing more. As a result the market has got overpriced and companies are way too expensive compared to what PE has been used to.
Given the increased competition for deals where do you see PE firms focusing their attention?
As US and EU markets get nearly saturated we observe more and more cross-border deals. More often than ever American investors look at South America, and Europeans at Africa. We don’t see Asia growing in popularity that much though, as China has become way too overpriced. India on the other hand is trying very hard to attract more investors, but struggles with trust issues from US and EU investors, still are afraid of regulation instability and corruption.
What types of deals or transactions are currently proving popular?
Urs Haeusler: At DealMarket the most popular transactions are growth investments in high-tech, healthcare, and manufacturing, where investors take a minority stake to benefit from profit lead by strong management teams.
What qualities in a company make it attractive?
Urs Haeusler: For most PE investors there are three key factors: good growth perspective, positive EBITDA and solid management team with proven track record. That’s a little bit different from VC investors, who might look at early stage business where EBITDA doesn’t make sense yet. High chances for fast growth however are always crucial.
Which industries currently provide the best opportunities for investors?
Urs Haeusler: High tech, with financial technology on the rise, keep proving to offer very attractive investment opportunities. Typically very traditional finance industry, which hasn’t seen major technological revolutions for years, is next in line to breed unicorn companies with huge technological impact.
What areas are being targeted geographically?
Urs Haeusler: Still US and Europe are the most mature markets for private equity, with most deals available there. With more openness to cross-border deals South America and Africa keep rising as new targets.
Do you see a difference between public and private markets in their short-term and long-term perspectives?
Urs Haeusler: Both public and private market are currently way overpriced, and both require a sharp eye to select those companies that will bring returns. Although the prices on both markets have evened out, the returns from private equity still outperform public equity. Thus private markets attract more and more capital, and with the abundance of private funding available, we will see more and more companies staying in private hands with no intention to go public.
What areas of risk require greater attention in 2015?
Urs Haeusler: With more cross-border deals done globally the main risks relate to political barriers and due diligence tools. Solicitation laws in the US or strict privacy laws in Europe are an example of risks that hinder not only investing and fundraising, but also build barriers for business growth. It’s important that foreign investors are aware of local regulations and use sophisticated due diligence tools prior to investment.
What key trends do you expect to see over the coming year, and in an ideal world what would you like to see implemented or changed?
Urs Haeusler: There will be significant growth of US companies available on the market, with retiring boomers selling their businesses. This, plus the fact that many private companies do not have to chase IPOs will correct the private market, making it much more competitive to fundraise and readjusting the currently pumped valuations.
In the ideal world I’d love to see lower qualification barriers for accredited investors and solicitation laws more open for both investor and fundraiser.