Experts agree - private equity is continuing to attract investor capital in 2017. However, there are various challenges facing PE firms in today's market. Increasingly tough conditions, high valuations, ongoing volatility and uncertainty on a global scale are all posing threats to the state of private equity.
Toppan Vintage, a trusted financial printing and communications company, in partnership with Mergermarket, is pleased to present the newest edition of M&A Pulse newsletter. This newsletter features responses from US-based senior corporate executives who shared their insights on the current and future state of unicorn companies.
Toppan Vintage question: What do you see as the greatest challenge for private equity fund managers over the next 12 months? Leading deal experts weigh in...
Ongoing volatility and uncertainty in global markets represents the greatest challenge for PE fund managers, according to 40% of our survey respondents. Twenty-four percent say high valuations pose the biggest hurdle and 20% say competition for assets stands in the way of PE deals the most.
Perhaps the main reason for dealmakers’ concerns about global markets is the current state of global geopolitics. In the US, President Donald Trump has failed to achieve any of his legislative objectives and has ramped up military tensions with North Korea. Across the Atlantic Ocean in Europe, the economy is finally on the upswing, but the specter of Brexit looms over the continent. In Asia, China has enacted restrictions on outbound investment. Together, these developments make it more difficult for PE buyers to accurately predict the outcome of a given acquisition.
The issue of valuation is becoming more serious as well. In 2016, the median EBITDA multiple paid by PE buyers in North America was 11.6x – which actually surpassed the median multiple in corporate deals of 10.7x, according to Mergermarket data.
The high level of competition between acquirers has contributed to rising valuations, said a partner at a PE and VC firm that invests in the software and data industries. “Prime assets are chased by many potential competitors and funds,” he said. “It has raised valuations and has also had an impact on margins and fee structures.”