Tough times bring opportunity for change to the private-equity industry, according to the Economist Intelligence Unit
But private-equity professionals see opportunity in adversity: the survey, which was sponsored by Celerant Consulting, finds that many private-equity firms will be on the lookout opportunistically for investments outside of their traditional geographic regions and sectors. More importantly, they will seek to bolster the performance of the firms in their portfolio—in large part through closer involvement in their day-to-day management. One-third of survey respondents, for example, say they are intervening more in portfolio businesses as a result of the credit squeeze. Longer term change will be sought in how firms structure the financing of deals.
The heady days of rapid private-equity industry growth masked problems of under-performance of businesses in many an investment firm's portfolio. According to survey respondents, the chief contributor to poor performance has been the failure, to one degree or another, of the management teams of invested firms.
Paying closer attention to the management of these firms should, of course, help private-equity funds increase the value of their investments prior to exit. But there should be broader benefits as well. "Improving the management of invested firms is good medicine not just for the private-equity industry, but for the broader financial sector and for the economy as a whole," according to Robin Bew, Editorial Director of the Economist Intelligence Unit.
These are among the main findings of a new report from the Economist Intelligence Unit, Mapping the recovery: New strategies for private-equity markets. Other findings of the research include the following:
· Expect no early recovery of private-equity markets. Reflecting the recognition that the financial-services industry as a whole is in for a long period of adjustment, private-equity professionals provide a sober outlook for their own industry. A clear majority of respondents (73%) see no recovery in private-equity business levels before the first half of 2010, although a brave 23% believe a full recovery will come before the end of 2009. Europeans are more sombre in outlook than their American peers.
· There is some taste for adventure. When it comes to choosing investment targets, traditional strategies will remain the norm for most private-equity firms during the downturn. Nonetheless, over 40% of respondents are ready to venture outside their comfort zone to seek deals, in terms of sector (44%), geography (45%) or size range (42%). Of the sectors likely to attract private-equity investment, healthcare tops the list, with IT and telecommunications also remaining a target.
· Caution will be the watchword in hiring. In the wake of the credit squeeze, most private-equity firms will be judicious in their recruitment practices. No more than one-quarter of respondents (26%) say they plan to increase the hiring of private-equity professionals in the current environment. Those that will land new jobs are far more likely to be operational specialists than financial analysts or investment professionals, likely reflecting private-equity firms' intention to become more involved in the day-to-day management of portfolio firms.
About the Economist Intelligence Unit
The Economist Intelligence Unit is the business information arm of The Economist Group, publisher of The Economist. Through our global network of about 650 analysts, we continuously assess and forecast political, economic and business conditions in 200 countries. As the world's leading provider of country intelligence, we help executives make better business decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies.
About Celerant Consulting
Celerant Consulting is an international consulting firm that specialises in operational transformation. The essence of Celerant's approach is that its consultants work side-by-side with people in the front lines of business from the boardroom to the shop floor to ensure the delivery of sustainable and measurable benefits. Celerant embeds long-term behavioural change into the culture of its clients' organisations using a unique approach called Closework . Over the last 20 years Celerant has become the largest independent firm of business operations consultants, with annual revenues in 2007 of over €110/$170m.
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