Private Equity goes back to school!

The recent downturn has not been a barrel of laughs for many!

Private Equity firms have been particularly hard hit. Contracting credit and declining asset values led to new deal activity  grinding to a halt. So is there a silver lining in all this for Private Equity or are they destined for a prolonged period of doom and gloom?

Private Equity firms could use the current period to initiate a number of changes which would allow them to position themselves well for the future.

When economic recovery does arrive Private Equity firms will be operating under a new set of rules; the question is which firms will be able to take advantage?

In the future lenders will be more cautious, partners supplying investment capital more demanding and competition for targets will be more acute.

In order to adapt to this era of greater scrutiny, many Private Equity firms have started to recognise the need for stronger, deeper industry expertise, combined with practical experience of running companies. This type of focus should yield numerous benefits for Private Equity firms:

• Specialised involvement will mark Private Equity houses out as key players in an  industry and will increase the volume and quality of deals sent their way.
• It will improve Private Equity’s ability to identify profitable deals.
• It will enhance their ability to formulate and execute value creating strategic plans for acquisitions including credible exit strategies.

So which industries should Private Equity houses focus on? Sectors will be selected by evaluating their relative ease of entry, competitive dynamics and potential acquisition targets.

We anticipate the Financial Services sector will be one of those that feature extensively in the current recession.

We are observing Private Equity houses making a concerted effort  to build stronger relationships with leading companies in the sector and recruit senior managers with practical experience of business restructuring.

Structural reform is imperative for the Private Equity sector is to rebuild its confidence and the trust of investors. Getting back to what they used to do, before the advent of cheap money, recruitment of inexperienced hires and rising markets that underpinned profitable exits, will be a blessing in disguise for this recently much maligned sector.