Tag Archives: Private Equity Trends

Introduction

Private equity has evolved as a trusted and prominent force in the global financial scene, attracting both high-yielding investors and growing enterprises. Private equity investments have become a crucial route for driving innovation, fueling development, and maximizing shareholder value in a period of rapidly changing markets and disruptive technologies. As the economic climate evolves, new private equity trends shape the industries, impacting investment strategies and offering value creation opportunities.

Private equity trends involve the practice of investing in privately held companies to acquire either a majority or a significant stake in the company. In line with current private equity trends, firms in this sector typically adopt a longer investment horizon compared to public markets. This approach facilitates patient funding and a strong focus on growth. Consequently, by aligning with the evolving private equity trends, investors can engage deeply in active management, driving operational enhancements, implementing growth strategies, and ultimately realizing a company’s full potential.

Benefits of Private Equity Investments

Private equity investments have several specific features that make them an appealing alternative for both investors and businesses:

Benefits of Private Equity Investments

Benefits of Private Equity Investments

Capital Injection and Growth:

Amidst current private equity trends, private equity provides companies with access to substantial capital resources, empowering them to embark on expansion projects, finance strategic acquisitions, and invest in research and development (R&D). This injection of capital, in accordance with prevailing private equity trends, can serve as a significant catalyst for companies, enabling them to not only scale their operations but also venture into new markets. As a result, this expedites their growth trajectories.

Active Management and Operational Expertise:

Unlike traditional investors, private equity firms often play an active role in managing their portfolio companies. They provide extensive industry knowledge, operational skills, and access to a network of resources to these organizations, guiding them towards achieving operational efficiencies, improved financial performance, and a stronger market position. This collaborative approach helps portfolio companies overcome various challenges.

Long-Term Horizon and Strategic Focus:

Compared to public markets, private equity investors benefit from a longer investment horizon. Rather than being influenced by short-term market pressures, portfolio companies can concentrate on strategic objectives and sustained growth, thanks to this longer-term commitment. Furthermore, private equity firms assist companies in implementing innovative ideas, making substantial investments, and establishing strong foundations for long-term success.

Interest Alignment: 

Private equity companies frequently co-invest with management teams in order to align their interests and promote a partnership-based strategy. Given that all parties involved remain focused on maximizing the value and profitability of the company, this alignment fosters collaboration, accountability, and strategic decision-making. As a result, this convergence of interests establishes a solid base for promoting long-term value development and sustainable growth.

Techniques for Private Equity Trends

Analysts can use a number of strategies to analyze and pinpoint private equity trends. These methods assist businesses and investors in gaining understanding of market dynamics, new opportunities, and potential threats. Here are a few methods that are frequently used to monitor private equity trends:

Research and Data Analysis:

In-depth data analysis and research are essential for comprehending private equity trends. Analyzing macroeconomic statistics, assessing industry-specific data, and reviewing previous investment trends are all necessary for this. Investors can spot new trends and decide wisely by looking at investment data, deal flow, exit activity, and sector performance.

Sector and Industry Analysis:

In-depth analysis enables investors to pinpoint potential hotspots for development and innovation. It entails assessing consumer behaviour, technical improvements, legislative changes, competitive environments, and market dynamics. Investors might have a deeper understanding of the potential and problems within particular businesses by concentrating on those areas.

Peer Group Analysis:

Assessing the performance of portfolio companies and investment targets against that of similar businesses in the same sector might reveal important information. Investors can evaluate financial measures, operational effectiveness, and growth rates through peer group analysis. It enables a thorough assessment of a company’s competitive position and opportunity to create value within a particular industry.

Market Research and Surveys:

These activities might offer qualitative insights into private equity trends. It entails getting input from important stakeholders, market players, and industry experts. Consumer trends, technology disruptions, new markets, and legislative changes can all be from surveys and market research studies.

Collaboration with Consultants and Advisors:

Consulting and advisory firms with private equity experience may be able to offer specialized analyses and insights. These experts can provide market information, assistance with due diligence, and strategic advice. Utilizing their expertise and experience can assist in spotting and taking advantage of private equity trends.

Challenges in the Private Equity Landscape

Many advantages come with private equity investments, but one should also carefully consider their drawbacks:

Challenges in the Private Equity Landscape

Challenges in the Private Equity Landscape

Due Diligence and Risk Management:

Effective risk management relies heavily on thorough due diligence when assessing potential investment opportunities. To make wise investment selections, private equity investors must undertake thorough analysis, review financials, assess market dynamics, and pinpoint potential dangers. Thorough due diligence increases the likelihood of success by reducing potential risks.

Capital Intensity and Financial Leverage: 

Certain industries demand significant capital investments and exhibit high levels of financial leverage. While capital-intensive strategies can drive growth, they also expose portfolio companies to financial risks. Thus, private equity firms must carefully balance their expansion ambitions with prudent debt management to ensure long-term financial sustainability and stability.

Exit Plans and Liquidity: 

Since private equity investments are inherently illiquid, well-structured exit strategies are often essential to realizing returns. These could be secondary buyouts, trade sales, or initial public offerings (IPOs). To maximize profits and obtain the correct exit multiples, exit timing and execution are essential. To take advantage of exit possibilities and produce favourable returns for their investors, private equity firms must carefully plan and monitor market conditions.

Magistral’s Services for Private Equity

As a trusted outsourcing partner for research and analytics services, we play a vital role in supporting private equity firms and businesses throughout their investment journey.

Investment Research: 

The team of skilled analysts at Magistral is capable of conducting in-depth investment research and carrying out thorough due diligence on possible targets. They analyse market trends, review prior performance, examine financial documents, and spot potential dangers. With the help of Magistral’s research, private equity companies can make well-informed investment choices that are in line with their investing philosophies and risk tolerance.

Impact Investing and ESG Considerations:

ESG factors are increasingly being integrated into private equity investment strategies. Magistral assists in evaluating the ESG performance of potential investments by analyzing corporate governance, social impact, and sustainability practices.

By incorporating ESG considerations, private equity firms can align their investments with ethical and sustainable principles while responding to the growing demand for socially responsible investing.

Technology & Innovation:

Technological advancements and disruptive innovations are reshaping industries worldwide. Private equity firms can leverage Magistral’s research and analytics services to identify technology-driven investment opportunities, assess market potential, and evaluate the impact of emerging technologies on portfolio companies. This enables private equity firms to drive digital transformation within their investments.

Industry-Specific Insights:

Private equity investments are made across many different industries, each with its own dynamics and difficulties. Magistral can offer industry-specific insights and analysis according to their sector-specific experience. Magistral’s research services can be used to assess market trends, competitive landscapes, regulatory frameworks, and growth possibilities within particular industries, including healthcare, technology, consumer products, and energy. This specialized knowledge promotes value development initiatives and improves decision-making.

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to prabhash.choudhary@magistralconsulting.com

 

 

 

Introduction

From Dutch East India company’s IPO to the largest IPO of Rivian, the Global IPO market as a whole has come a long way. There are multiple global IPO trends that are currently shaping it. The world’s IPOs raised $608 billion in 2021 with the technology and consumer sectors topping the list.

“An IPO is like a negotiated transaction- the seller chooses when to come public- and it’s unlikely to be a time that’s favorable to you” – Warren Buffet

As governments across the world announced covid vaccine programs and stimulus packages, the markets recovered in an unprecedented way.

There was a  worldwide surge in retail investors with active investor accounts increasing by a record 10.4 million in India. There were roughly six million Americans who joined the market by downloading retail brokerage apps. With favorable market conditions and high liquidity, 2682 deals have been finalized globally in the run-up to the IPO. There are many cases of IPOs where venture capital and private equity firms have made tremendous profits by exiting, which is called offering for sale (OFS).

Now the question arises “What’s driving the surge? why even after the pandemic retail investors are taking the risk? Why is there an increasing trend of Venture capital/private equity-backed companies getting a listing on the Stock market? what are the lessons that we can learn from 2021-the year of Investors?

Major Global IPO Trends

IPO trends that are shaping the global markets

Global IPO trend-“The Revitalization”

Massive covid-19 vaccines roll-outs, government stimulus packages, and welfare policies have acted as moral suasion for security and stability. The rebound of global economies with stable growth projections provided an impetus for the pandemic-propelled companies to grow. India has been ranked third in the world behind the US and China in terms of unicorns, disrupting the start-up universe. This clearly shows the growing importance of start-up investing as Technology IPO proceeds increased from  $54billon to $92billion with the Americas and Asia-Pacific the key markets.

Hottest Sectors

In terms of sector share, technology and health grabbed investors’ attention with a worldwide share of 21% and 14%( excluding SPAC IPOs) respectively. The fusion of technology and health would be a future, and investors would embrace it to stay relevant in the coming years.

Climate-focused tech start-ups are becoming increasingly popular with the ability to grow at a breakneck pace. Factors such as favorable government policies and public awareness of climate change are helping to mainstream the issue.

Diversity

Gender-lens investing(GLI) i.e investments in firms that are led by women, serve women customers or have a gender-balanced approach. The recent successful IPO of NYKAA is the perfect example of how gender-smart investing gaining momentum globally. According to the First round capital research, the founding team that includes both men and women gets stronger valuation growth than the all-male team.

Technology

With the successful IPO of Coinbase, there are companies across industries planning to accept cryptocurrency as the mode of payment. The biggest hurdle for the industry is regulations, once they are cleared investors can tap the trillion-dollar opportunity.

Hottest Regions

By region, the US had the largest share of global proceeds which was 57%. EMEA(Europe, the Middle East, and  Africa) had the highest relative year-on-year growth of 367%. In the Asia Pacific, there was a steady growth despite resurgent covid 19 waves in the region.

Even though there was geopolitical tension between the countries, there was a positive environment for IPO activities across many markets including the US, China, Europe, and this would remain the same in the coming years.

Global IPO Trends- The role of retail investors

Factors like increased isolation, lockdowns, more time for introspection, restricted spending, and more cash in hand are some of the factors that urged retailers to go for the investments that they had never done. Now, terms like IPO, Bull run, Startup, Investment, gross margin are being discussed in the family, all thanks to SharkTank. Fixed deposits or mutual funds are not the preferred mode of investment anymore.

With the restricted movement, increased digitalization, and use of social media for almost everything, there is a well-established ecosystem supporting retail investors in every possible way. A recent case of how Reddit users toppled GameStop’s share price is a perfect example of how social media can influence stock markets. Today’s generation is curious, ready to try new things, aware of the global trends whether it is for investments or Tiktok, and the only positive thing that came out of the pandemic is that people are now more mature, and they do not see profitability as the only factor.

Global IPO Trends- Venture capital and Private Equity-backed deals

According to the EY report, In 2021 – 33.6% of global proceed were the deals that are (were) backed by Venture capital and Private Equity firms with the USA having more Venture capital and private equity firms backing IPOs. The US and Europe had 56.5% and 41.1% of global IPO proceeds respectively. There was a slight increase in the cross-border global IPOs which accounted for 18.8% of proceeds in 2021 as opposed to 10% in 2020.

According to a McKinsey report, there was a growth of approximately 20% in the private market in 2021. Private equity remained the highest performing private market asset class.

With the buoyancy in the secondary market and new retail investors entering the market, Venture capital funds and PE firms benefitted the most as seen in the global IPO trend for Offer for sale(OFS).

There was $43.2billion worth of exits made through deals in 2021. Private equity and venture capital investments were 62% higher as compared to 2020 in India. With the booming start-up culture around the world, particularly in Asia, everyone is searching for new ways to invest, and private equity has emerged as the perfect alternative.

The future

The Key concerns are ongoing geopolitics, invasions, higher inflation, new covid variants, higher volatility, lack of knowledge of new-age retail investors. The businesses that sail through these would be likely to grab the investor’s attention.

Ecommerce and financial technology dominated the year, with consumer technology and digital media expected to take center stage in the coming years.

A mix of both technology and the health sector is going to be the center of attraction for years to come. There is a need for more climate tech start-ups like Rivain as climate change problems are here to stay if not dealt with properly. Sustainable mobility is seen to be the investor’s interest as of now. All the governments are changing their policies to become more favorable for electric vehicles.

The global crisis triggered by covid-19 has escalated the need for investments that are more gender-smart. The role of impact-driven investors would be of great importance for the global IPO market.

Crypto Economy is still quite volatile but gaining traction with companies like Coinbase-the largest cryptocurrency exchange in the US making way for others.

There are a lot of IPOs in the pipeline like Reddit, which will drive the growth. All we need is to have an impact-driven approach to counter the after-effects of Covid-19 and make a profit in the long run.

About Magistral consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to  prabhash.choudhary@magistralconsulting.com

 

 

Introduction

As the COVID 19 pandemic continued to threaten investor sentiments the PE industry was also affected by it. In an increasingly connected world, this is a fact given that the effect of changing trends in one part of the economy is bound to affect trends in another part of the world – a sort of chain reaction. The PE market saw a decline in 2021 in deal-making with the firms becoming more risk-averse and the focus being on stabilizing current portfolio investments.

However, the second half of the year 2021 started seeing more investments with the markets showing more resiliency regions like the Asia Pacific seeing a doubling of the number of investments as compared to 2019. Overall, $628 Bn worth of capital was raised in 2020 which was 20% less than that in 2019.

The dry powder had increased, with the amount swelling to almost $2 Trillion dollars which is close to a record all-time high. IT and healthcare were two of the major focus areas during this time.

Political unrest, the increased adoption of digital technologies, and the increased adoption of ESG are some of the key trends which have been shaping up the industry. This has forced the managers and PE investors to rethink their investments strategies. They have done this by steps such as looking at reshaping their current investment models as well as by relooking at their portfolio investments.

The key to survival in such a scenario is adapting quickly to changing market dynamics, adapting and acting quickly by taking into account the major trends shaping up the industry as well as thinking broadly and executing region and sector-specific strategies. One such example is the adoption of digital technologies so that the entire organization can be on the same page and be swift and nimble to market changes thereby becoming more operationally resilient.

To such an end this exercise would require one to rethink their mandate and investment strategy as well as their business operating models and methods. Greater involvement with key stakeholders and engagement with industry leaders is one such methodology to counteract the ill effects of COVID 19.

Technological changes in themselves is a megatrend impacting all sectors and investments

For us to understand how the Private Equity industry is being affected by the COVID 19 pandemic we must also understand other underlying dominant forces which are shaping up the world.

The Deep Tech revolution

One must have heard of the space race between Blue Origin and SpaceX. Space travel has become a reality and has captured the public imagination. This is one such instance that has seen a diverse and vividly imaginative and technically sound staff coming under one roof to fulfill its mission of space travel.

Quantum computing and the rise of Artificial Intelligence

With the achievement of quantum supremacy as announced by Google and IBM we are slowly but surely entering the age of super intelligence where experts foresee the end of classical computing and Moore’s law with classical computers being replaced by exponentially faster quantum computer cousins. It will soon find its way into automation of services such as credit approval, granting of loans, and automation of several banking processes.

Online security and online data protection

There will also be an increase in rule-breakers when it comes to the world of finance and hence online security and online data protection will be one of the services most in demand.

Cryptocurrency, Blockchain and the world of digital payments

As the internet penetration increases and with adoption and connection by leading technologies such as 4G disruptive services such as cryptocurrencies, blockchain, and digital payments will see a rise. This is evidenced and catalyzed by e-commerce and e retailing which boast of contactless payments to their customers.

Key trends shaping up the global Private Equity industry

It is important to understand the investment trends especially in the US which is the heart of the Private Equity and Venture Capital Industry. Investments by them in startups have increased over the last 20 years yet their rate of return has been below average or just above the average of major stocks listed in the stock markets (even though in the last 10 years they have outperformed the S&P index).

Viewed overall, this is a major problem for the US economy as it not only discounts the innovation premium on which US companies pride themselves but it also affects the investment sentiments of the investors at large.

With this in mind let us look at a few of the latest trends in Private equity investments

Increase in Mergers and Acquisitions

As compared to traditional IPO’s and funding for more traditional ways of organic growth, it is the Mergers and Acquisition route that the Private Equity firms are gravitating towards. One major focus area for this is the insurance sector and the major geographic area are countries like China and India as they ease the rule for participating in their domestic economies.

This trend by the PE/VC firms towards mergers and acquisitions rather than following the traditional IPO route is the primary reason why the returns from investments in startups have been on the decline.

Global Private Equity Trends

Global Private Equity Trends and its impact on PE returns

Focus on Special Purpose Acquisition Vehicles (SPAC’s)

A SPAC is a company that has no commercial operations of its own and has been raised specifically to raise capital through IPOs to acquire or merge with an existing company.

Just to get an idea of the volume of transactions involved, around $80 Billion worth of money was raised by 247 SPACs in 2020 and this amount went up to $96 Billion from 296 SPACs in 2021.

Lowering of interest rates

The decrease in investments activity has meant a fall in rates globally. The coming year 2022 is expected to show a rise in borrowing activity complemented by a not so rapid rise in interest rates.

The rise of the startup ecosystem

The startup ecosystem will be an area of continued focus which means increased investments in cities like the Silicon Valley and much closer to home cities like Bengaluru and Mumbai. However, PE firms are more likely to stay vigilant and go slow with the focus being on sound financial stability as well as relatively risk-free returns.

By June 2020 the number of Unicorn startups in China rose to 227 rivaling those in the US which had 233. The size of Global Unicorns is close to $2 Trillion which although huge means there is still scope of expansion in other geographies of the world.

Some of the global startups include the fabled FAAMNG (Facebook, Amazon, Apple, Microsoft, Netflix, and Google) which accounts for more than 25% of Standard and Poor’s total market capitalization.

Conclusion

The year 2021 has been a watershed year for us with the COVID 19 pandemic teaching us vital lessons. Companies have not only learned to respect uncertainty but also learned that they need to be nimble and agile when it comes to dealing with real-world situations. Hopefully, these lessons will be remembered by us for generations to come.

About Magistral consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to  prabhash.choudhary@magistralconsulting.com