Amid heightened competition and regulatory uncertainty, the private equity industry is exhibiting growing confidence and appetite for investment. A study jointly released today by global valuation and corporate finance advisor, Duff & Phelps, and international law firm, Shearman & Sterling LLP, underscores these conclusions and related key findings in its inaugural Global Private Equity Outlook report published in association with Mergermarket.
Respondents overall are bullish about an increase in private equity activity over the next 12 months, with 87% of respondents expressing confidence in a near-term increase in buyout activity and 72% expecting fundraising prospects to improve in the next year. Specific areas of anticipated strength include cross-border investments (industry-wide), consumer and the integrated telecommunications, media and technology (TMT) sectors. Specific highlights from the study include the following:
- The value of year-to-date exits at US$227 billion is fast approaching 2013’s total of US$282 billion.
- Survey respondents expect the consumer and integrated TMT sectors to have the best opportunities for private equity. Interest in the integrated sector is driven by technology investments, which comprise 75% of year-to-date TMT buyouts. There were 149 TMT buyouts worth approximately US$28bn so far this year.
- On average, cross-border transactions will make up 30% of respondents’ acquisitions over the next 12 months. The notable proportion of cross-border investments by PE firms can be attributed to attractive investment opportunities across the globe. Survey respondents report that 66% of North American, 40% of European and 33% of Asia-Pacific will access foreign markets for financing.
More than a quarter of respondents (28%) think that regulatory and compliance risks are the top challenges faced by private equity firms. "Across geographies and industry sectors, private equity professionals express optimism,” noted Bob Bartell, Global Head of Corporate Finance at Duff & Phelps. “Competition is growing, but the industry is confident that strong investment pipelines, financing accessibility, and exit options will all contribute to a vibrant industry in the year ahead and beyond.”
Despite the general optimism, respondents cite challenges related to regulatory hurdles, compliance risk and increasing competition for assets. Jeremy Dickens, Global Co-Head - Private Equity Practice, at Shearman & Sterling explains, “The classic private equity fund is facing stiff competition from a new breed of investors, including sovereign wealth funds, state-owned enterprises, pension plans, specialist funds and large family offices. This has led to fundamental changes in the private equity marketplace.”