Like all types of finance, private equity tends to go through phases. While one industry might seemingly be fashionable one decade, another will soon arise and take over a short while later. It’s what makes the world of finance go around.
You’ve only got to look at Marc Leder and his Sun Capital firm who have diversified their portfolio immensely over the years. Trends will have played a part of this – it’s something that any investor worth their salt simply has to keep an eye on.
Taking this into account, let’s take a look at some of the biggest trends which appear to be donning the industry right now. These come courtesy of a study conducted by industry professionals, meaning that most are accompanied by some interesting statistics.
Valuations are still high
This is something that has been reported on for years and unfortunately for PE-firms, it doesn’t look to be changing any time soon.
Valuations of companies are still high and while some sources might suggest that the volatility of the market might decrease them, the general consensus is that they are going to stay high for a long period of time.
In other words, firms are having to pay more for their stock.
Firms are attempting to take more of a stake in companies
That last point might have some correlation with this next issue, although unfortunately there are no hard-and-fast facts to prove it.
In a study, 40% of respondents in the industry said that they think that equity contributions are going to rise over the next twelve months. It means that private equity firms are attempting to increase their power which considering the fact they have to pay more in the first place, is hardly surprising.
Diversification is becoming more common
This was touched upon in the opening section to this guide when we pulled out the Marc Leder example, and how his company have made an extremely successful business out of diversifying and investing in countless different industries.
According to the survey of industry professionals, such diversification is only going to rise.
Perhaps the most interesting point here is that large firms seem to be targeting companies who are distressed. In fact, in the study, 73% said that they were considering becoming more involved in companies in this category.
When we switch the attention to smaller PE-companies, there still seems to be a willingness to specialize though. This is emphasized in the fact that almost 60% of small companies said that they only invested in one industry.
Stricter regulations aren’t making an impact… yet
There has been plenty of noise over recent times regarding the new regulations that are impacting the financial world. When these regulations were first announced, some believed that it could cause some massive shifts in the industry.
Fortunately, this doesn’t seem to be happening just yet. While those involved in the study we analyzed stated that they still think funding will be more difficult to obtain in the future because of the different guidelines, for the time being things are continuing as normal.