More bad news for Private Equity?

The recent disclosure that a number of Private Equity bidders may have been excluded from the bidding for the Insurance assets of Royal Bank of Scotland (RBS) amply illustrates the extent of the current challenge for the sector.

Faced with a shortage of debt providers willing to underwrite major acquisitions, the prized asset in the sectors arsenal, namely the ability to tap into the debt market at will, is looking like something even the best connected arms dealer would struggle to shift!

Without access to cheap debt and a generally gloomy outlook for the world economy, the Private Equity 'easy street' has developed more pot holes in it than the one maintained by the most indebted Council in Britain. Yes, that bad!

The response?

Faced by a seismic shift in competitive positioning vis-a-vis corporate aquirers, the response will challenge the best in the sector. The 'value add' will be driven by two factors:

• innovation - ostensibly the ability to structure a collaboration (with the corporate sector) through joint ventures and partnerships to extract value through the decomposition of the value chain
• transformation - taking a significant position in a sector through 'buy and transform' plays leveraging deep industry knowledge supported by operational excellence delivered at pace.

Either way, deals will be harder to execute, require a change in the funding mix and take longer to exit.