Private Equity Industry Update

Private Equity Industry Video Update | THL Partners

Following yesteday’s look at the “new normal” of private equity, here is a good video update on the private equity industry from a partner at a major private equity firm. The economic recovery is still very shaky and private equity firms and investors are having to decide when is the right time to get back in the market again. Scott Sperling of Thomas H. Lee Partners, one of Boston’s largest private equity firms, says his firm is aggressively looking for new opportunities especially in the services and business outsourcing sector as well as retail but that this recovery is “fragile.” He also mentions the gap in valuation between what the company is valued at in the public market and what private equity firms think it is actually worth. E-mail subscribers can watch the video here.

Companies are still valued higher than private equity firms are willing to pay, and in order to pay 7-9 times cash flow Sperling says he must be certain that the economy is stable. Part of this may be a hope on the buyout side that these companies would be willing to sell for less than they are worth due to economic pressure. Sperling closes with the negotiations between the FDIC and private equity firms and the recent regulation, advocating strongly for lowering the reserve requirement so that private equity firms and their companies are not competitively disadvantaged.

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Private Equity in the Financial Crisis

How Private Equity Will Survive the Financial Crisis

Private equity has suffered amid the financial crisis, especially in the stable area of private equity, leveraged buyouts. As banks are less and less willing to finance debt for big private equity buyouts, private equity firms are faced with unsettling prospects. A new report shows the challenges facing private equity and how firms are adapting. The report outlines areas of concern as well as opportunities for private equity firms trying to survive the financial crisis.

Private equity surviving through the current financial crisis

• Improving the Business Model By Diversifying: The economic downturn may well present opportunities to expand into other asset classes. Private equity has shown a trend of growing the business beyond U.S. and European leveraged buyouts into other asset classes and investment areas that could perform better in a poor capital market. Beyond adopting other asset classes, private equity firms will likely take advantage of the failing investment banks by either buying large stakes (even a controlling interest) in banks or hiring talent from the investment banking industry. Taking on experienced staff from investment banking firms can help expand private equity geographically, enabling a profitable entry into emerging markets abroad.
• Greater Accountability: There is a long-standing critique of private equity that is has very low transparency and accountability to investors. The traditional private equity view on heightened regulation and accountability has been negative because it would likely cut into profits. However, with the investment banking collapse putting a spotlight on corporate responsibility it is likely that private equity will necessarily adapt to increased accountability. Not only toward investors but also the environment. While the push toward “going green” presents some exciting and potentially profitable business opportunities, it also impacts the way companies operate and adds more liability. Environmental responsibility does not appear to be a passing trend, so private equity firms hoping to survive long-term should be more conscious of the environmental impact.
• Reduce Tax Risk: Global expansion is a way for private equity firms to access new investment opportunities and new investors, but it also presents more complicated tax risks and structural concerns. With new less-developed investment territories come new tax issues such as permanent establishment and beneficial ownership. Additionally, in developed countries tax policy is evolving with new anti-avoidance measures and increased audit activity over transfer pricing and jurisdictional substance. On the other hand, some tax systems may treat firms more favorably and present exemptions and benefits as private equity expands globally.
• Expanding to BRIC: The rapid growth in Brazil, Russia, India and China have attracted private equity firms hoping to profit from these evolving economies. BRIC present new investment opportunities and the potential private equity firms to profit from the considerable earnings growth prospect in these emerging nations. Understanding the risks and opportunities for each specific country is fundamental for a successful international private equity firm.
• Long-term Focus: Larger private equity buyout deals tend to have a long-term focus but the small and middle-market deals often have shorter holding periods. An emphasis on long-term structural adjustments and management improvments may help private equity outlast the current poor financial market by improving the current investments until there is greater capital available for new investments.

Report: Seeking Differentiation at a Time of Change

Tags: Private Equity in the Financial Crisis, What will happen to Private Equity in the Financial Crisis?, Private equity future, economic crisis, financial crisis, private equity and investment banks, mortgage meltdown, private equity report, private equity industry future

Economic Crises

Economic Crises – Video Post

Below is a short video on the economic crises, trends affecting the economy and how the US government recently bailed out Bear Stearns. Much of this talk refers to the need for the economy to pull back in order to grow in a healthy way in the future.

- Richard

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Tags: Economic Crises, Economic Trends, Economic Status, Economic Crises, Economics Crisis, Economics Crises, Economy Crisis, Macroeconomic Crisis, International Economic Crisis Video

Economic Crises

Economic Crises – Video Post

Below is a short video on the economic crises, trends affecting the economy and how the US government recently bailed out Bear Stearns. Much of this talk refers to the need for the economy to pull back in order to grow in a healthy way in the future.

If you are viewing this post via my daily hedge fund newsletter please click here to view the video now.

Tired of reading articles? Watch more videos like this one above within the Hedge Fund Videos Directory.

- Richard

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Permanent Link: Economic Crises

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