Private Equity Marketplace
Despite the coronavirus epidemic that has swept the globe, causing widespread disruption across markets worldwide, there is still the potential for continued growth and positive returns in the Private Equity (PE) industry, both in the UK and on the global stage.
Since the financial crisis of 2008, a stagnation in public market offerings has coincided with a significant rise in private equity investments, offering better returns and capitalising on the new trend for companies to stay private for longer periods of their lifecycle. Ernst & Young have described the rise of private equity as ‘one of the most profound shifts in the capital markets since the 19th century when public equity markets first became widely accessible to investors, with Assets Under Management (AUM) now standing at $5.7Tn (McKinsey 2020).
As arguably the most developed private equity market in Europe, the UK has been at the centre of this trend, with leading private equity funds reporting increased flows over the past five years, even amid the height of Brexit uncertainty. Over the next five years the industry is expected to face several serious challenges.
The risk that coronavirus-induced economic turmoil will suffocate economic activity beyond the short term is a real threat for an industry that relies heavily on strong levels of Merger & Acquisition (M&A) activity. Portfolio company valuations have shifted down and performance is uncertain, thus holding periods and fund life have lengthened to ensure exits can be profitable. When exits have stalled and fewer good investment opportunities are present, this may lead to broadening the search to new but riskier PE markets. Additional pressure on industry profit margins comes with lower fund inflows from institutional investors, expecting to result in a contraction in AUM.
The Challenge
Although confidence is steadily growing within the private equity sector, challenges remain in fundraising, deal activity and the exit market. Amongst a backdrop of fierce competition and regulatory pressure, private equity companies must work smarter to add value through all stages of the PE lifecycle. The issues are complex. The industry is under pressure to deploy capital amid unprecedented economic and geopolitical uncertainty, increased competition and rising stakeholder expectations. Successful deals depend on the ability to move fast, drive rapid and strategic growth and create greater value throughout the entire transaction period. In todays’ highly competitive market, identifying and qualifying deal opportunities, as well as understanding preacquisition risk, is key to driving value on deal completion and under ownership.
What do ERA offer?
ERA is a global network of specialist procurement and cost management advisors. Our Private Equity team works with you to review supply-chain integrity, contractual liabilities and the indirect cost base during buy-side and sell-side due diligence. Cost reduction and overhead management is an increasingly important component of improving profitability and increasing cashflow to maximise EBITDA and exit values, but the delivery of savings cannot come at the expense of the customer experience or regulatory compliance. This presents a significant barrier to delivery for many organisations.
To achieve a competitive and sustainable cost base, firms must find the right mix of tactical cost reductions to drive short-term gains and more strategic initiatives to realise the transformational improvements needed to drive enterprise value.
Once identified, the focus needs to be on effective delivery. Most cost reduction programs do not fail because of a lack of opportunities or the absence of a vision for transformation, but because of insufficient resources and poor implementation. Mitigation of risk is also a key element of our process, providing surety of essential goods and services and an in-depth interrogation of existing contractual arrangements. The result is to avoid contract rollovers and vendor led renewals, plan for termination and minimise or eliminate contingent liabilities. This work also ensures suppliers and the procurement process actively contribute towards maintaining compliance with statutory and regulatory responsibilities, as well as achieving and preserving your Corporate Social Responsibility goals.
Outcomes
Due diligence is an essential part of the M&A process for the parties on both sides of a transaction, and identifying risks and opportunities in the supply chain and cost base is a key element of this. The ERA process will expose potential weaknesses in the provision of key goods and services and improve the efficiency and profitability of the business. Overhead cost savings fall straight to EBITDA, with the exit multiple enhancing shareholder value. Whether you’re on the buy-side or sell-side of a deal, preparing for due diligence or rethinking your cost management strategy, ERA work together with you to resolve complex issues, identify opportunities and deliver value to your business.
Contact me Dr.Tahsin Yasin, tyasin@expensereduction.com to discuss the 4-step ERA approach, to arrange a pilot, on a no savings no fee basis.
Expense Reduction Analysts improving business performance for thousands of SMEs and corporate clients worldwide since 1992.
- Log in to post comments