Summary
Key beliefs from private capital firms are at odds. While most believe the demand and activity of private equity will increase over the next 12 months, most also believe the restrictions on investments will increase and the economy will not improve. This opens the doors for a confused market that will most likely continue to wait on the sidelines for signs of improvement.
Analysis
While much of the YTD data shows dramatic decreases in private capital investments around the globe, it appears many firms are optimistic about the next 12 months. This shouldn't be too surprising considering how deep the year-over-year drop has been. The majority believe the activity and demand will increase, but also believe the economy will not improve and restrictions on investments will tighten. This unfortunately is a contradiction. If the economy doesn't improve, the majority of private companies will not show progress. If restrictions on investments continue to tighten, then valuation and activity will remain low.
Demand for private investments has grown this year and will continue to grow; however, at what price. More and more private companies are finding alternative funding resources such as "private" money, joint ventures and bootstrapping.
Over the next 12 months, one of three outcomes will occur- 1. The acquisition activity will continue to decrease and the desperation for private equity will increase, causing owners to settle for a lower valuation. 2. Private capital firms will continue to experience increased pressure to invest, and valuations and activity will see an uptick. 3. The economy will improve allowing small companies to realize improved revenue streams. This will result in increased valuations and activities.
One of the key elements to the outcome is highlighted at the end of this article. The private business owners understanding of the private equity market and the preparation needed to attract investments is paramount to the success of their efforts.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
