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Private Equity Investor Outlook for 2017

For companies looking to sell their businesses, the market is lending itself to very high valuations. Given the bull market that we are currently in, strategic buyers have a record amount of capital. Valuations are the highest that they have been since 2007, yielding a unique opportunity for companies looking to be acquired. But, record-high valuations create a different set of challenges for both the buy-side and sell-side. At our second annual Alternative Investment Summit in New York, panelists discussed the current state of the private equity industry and the outlook for the remainder of 2017.

Due Diligence:
Given the high valuations, private equity groups are requiring more due diligence on prospective portfolio targets. The level of scrutiny applied during the due diligence process can have an adverse effect on the process, according to our panelists, who cited longer due diligence timelines than previous years. Unsurprisingly, panelists agreed that a best practice for business owners is to pre-emptively have a sell-side quality of earnings report prepared in order encourage a timely deal close.

Closing the Deal:
Ensuring that a deal goes through is of the utmost importance to both parties – buy and sell. Upon the announcement of a sale of a business, there is a lot at risk – especially with a public company. Once the intent to sell has been made public, it’s expected that the operations will deteriorate due to the distraction of the employees seeking alternative employment, etc. Being able to demonstrate the size and scope of a PE group’s balance sheet; their approach to working with the company, regulators, unions, etc.; and the ability to demonstrate a track record will often put management’s mind at ease and increase the likelihood of a close.

Holding Periods:
Overall, holding periods seem to have been longer in recent years, which panelists attributed to the 2008 market crash. The holding periods for many of their clients have been closer to 5-6 years, compared to the targeted 3-4 years in years past. Additionally, given the extremely high level of capital and the fixed supply of deals, the competition for deals is heightened. As a result, some private equity groups are loosening their restrictions for deal scopes – one panelist even cited their client creating a buy and hold fund, others seeking minority interests as opposed to majority ownership or recapitalizing with a strategic owner who has synergy and scope that maybe the PE group does not have.

EisnerAmper would like to thank the panelists for their time and insights:

  • Andrew T. Greenberg, Fairmount Partners
  • Peter Petrillo, Wafra Partners
  • Jay Lucas, Lucas Consulting Group
  • James Pieri, Blue Mountain Capital

Jaclyn Greco is a Financial Services Group Manager providing business consulting services to alternative investment funds, including hedge, private equity, and venture capital funds, primarily situated in the pre-launch stage.

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