Recently Bain & Company (Bain) released its 2022 Global Private Equity Report. Bain is the leading consulting partner to the private equity (PE) industry and its stakeholders. PE consulting at Bain has grown eightfold over the past 15 years and now represents about one-third of the firm’s global business. So, Bain’s well connected to the PE industry and trends impacting it.
As we have discussed in prior posts regarding worldwide M&A activity, Bain data indicates that 2021 was a record year for global PE as well:
By just about any measure, private equity set a remarkable new standard for itself in 2021. Buyout deal value and exits shot to stunning new records. General partners (GPs) had the second-best fund-raising year in the industry’s history, capping a five-year run that has netted $1.8 trillion in new buyout capital.
As shown above, 2021 saw a huge increase in both deal number and deal value globally. Most importantly, fund-raising, a measure of “dry-powder” or the availability of capital to fund acquisitions 3-5 years out, also grew to record numbers.
Now having said that, the question now becomes what happens in 2022?
While we believe the outlook remains strong in 2022, several important factors will weigh on investors’ minds as they think about doing deals. Covid-19–related issues have increased inflation to levels not seen in the US and other markets in 40 years. Russia’s invasion of Ukraine has dialed up global disruption, causing uncertainty around supply chains, energy prices, and other economic factors, as well as untold human suffering, fear, and panic.
There’s no way to know how these global disruptions will play out, but the reaction from the Federal Reserve and other central bankers will shape current and future deal making. One thing is certain: There are now inflation playbooks developing across the GP and LP landscape as investors race to protect margins and future returns.
Since the report was published, the situation in Ukraine has grown even more dire and the Fed raised interest rates a quarter of a point. Although the interest rate increase simply brought the rate to pre-pandemic levels, the Fed signaled that more increases are probably coming.
As for Ukraine, the global economic waves are still unknown. The reality for U.S. based businesses is that once again North America is the safest region in the world to make acquisitions. The situation in Eastern Europe today sadly only makes that clearer than ever.
Unfortunately, far too often, uncertainty has led to indecision, delay, and a short-term view rather than a longer-term strategy. That is why if you are a business owner in North America today, you need to be sure that PE firms are part of your potential buyer lists. These professional buyers typically do not let short-term disruptions distract them from their long-term view.
Although rising rates will make it more expensive to finance deals in general (thus potentially impacting valuations), these buyers, especially PE firms that focus on middle-market deals, have a five-to-ten year horizon for many of their investments. This means that they know that where we are today is not likely where we will be down the road.
However, this does mean that you need to act soon to either exit before rates go up too high, and/or create a long-term growth plan to ride out these short-term disruptions and build a buyer ready business, no matter what geopolitical events may cause.
Generational is very unique in the middle-market investment banking business. Via our Consulting Team, we work with our clients from the outset to build tactical and strategic plans to grow a business, then work hard to find optimal buyers for our clients, and finally help them with their newly monetized wealth after the sale of their business. Our recent investment in Precocity, a leading technology services firm, adds one more tool in our belt to help our clients sustain long-term growth.
As Bain stated, “There’s no way to know how these global disruptions will play out”. If you would like to find out how our full suite of investment banking services can help secure your future, please reach out to us at 972-232-1121 so we can discuss your specific situation and plans.
And realize that uncertainty also opens doors of opportunity for those brave and wise enough to see them.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2022 Generational Equity, LLC All Rights Reserved
it all started with a conference.
start your story today,
speak directly with one of our senior advisors +1-972-232-1121
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
Generational Consulting Group’s affiliates are all part of one corporate family, they work with one another and may work together to provide services to you. The sharing of your information among affiliates enables Generational Consulting Group to serve you more efficiently and makes it more convenient for you to do business with Generational Group. Generational Consulting Group is permitted by law to share information with its affiliates. All of our affiliates follow similar privacy policies.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Group.