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Private Equity

Creating growth

The challenge of buying well in today's private equity market

Private equity has always focused on creating value and helping promote growth in portfolio companies. Since the industry began, private equity firms have tried many ways to meet this ultimate objective – and with varying success. Now, post the global financial crisis, the question being asked more than ever is: how can private equity deliver its value-added promises? 

The fourth edition of the Grant Thornton Private Equity Report, an annual survey of 175 senior industry practitioners around the globe, finds a new focus on returns rather than entry multiples; secondary buyouts increasing in importance; and thirdly the significance of management in delivering the new plan. 

Report highlights

  • It’s less about entry multiples and more about returns

    Today’s ultra-competitive market requires an increased focus on performance improvement if the returns GPs are striving for is to be achieved. GPs will need to consider what impact this may have on their fundraising and liquidity realization strategies if this emphasis implies longer hold periods within their portfolios
  • Secondary buyouts are a serious buy-side option, not just an exit make-weight

    While there may be less value-add potential with secondary assets from the perspective of the buying GP, the fact that a company has already been through a private equity cycle has clear benefits for the acquirer.  In a market where deal origination is challenging, a premium is increasingly placed on greater transparency and lower deal execution risk.
  • It pays to understand management team capability early in the deal process

    In the current environment especially, being able to accurately assess management’s ability to implement the post-acquisition plan is a vital part of investment decision making.  Despite this, management issues are the single largest reason for a deal to collapse at the due diligence stage, suggesting that GPs need to assess and addressing management quality as early as possible within the deal cycle. 

For more information, please read the press release.