Oh, what a difference a month makes.
Prior to the coronavirus sending the world into a health pandemic and a global economic downturn, Bain & Company released its annual “Global Private Equity Report” to provide context and insights for the current year. While these reports often top 100 pages (which makes them somewhat cumbersome to digest), they are filled to the brim with useful information.
I took a dive into this year’s report and pulled out some highlights. While it’s interesting to look at these insights now through the COVID-19 lens, the key takeaway is the same: higher stakes for value creation.
In a time like no other in modern history, companies will need to create value quickly, efficiently, and with little margin for error. In our experience, this is where expertise comes in. This isn’t the time to be “learning on the job.” Rather, it’s the right time to create your own “value creation task force” powered by individuals or groups who know exactly what to do.
Here are the top 10 things to know, along with page references:
- PE buyout deal value remains robust at $551B in 2020 (page 5).
- Deal multiples reached an all-time high (average of 11.5x EBITDA) fueled by robust debt markets (pages 6, 7).
- Uncalled capital (aka “dry powder”) has been rising since 2012, hitting $2.5 trillion in December 2019 (page 11).
- The largest exit channel for PE is strategic buyers (pages 14,15). Judging by our experience at BluWave, strategics typically get aggressive for cleaned-up companies and they’re much less willing to buy fixers.
- Private equity is still outperforming public equity over the long term, but the spread is decreasing as absolute returns in PE decline due to industry maturation and related supply/demand dynamics (pages 24, 25).
- Fundraising had been robust, but we’re moving toward a world of haves and have nots with fewer funds raising larger sums. Meanwhile, fundraising is taking longer (page 20).
- Winning firms tended to be buyout firms with strong track records (top 1 or 2 quartiles), a clear strategy, a high degree of specialization, and strong value creation capabilities (page 22).
- Funds are distinguishing themselves by focusing and recognizing patterns for value creation (page 89).
- PE funds must aggressively deploy new levers for value creation to continue making things economically interesting and attracting investment as the LP world bifurcates.
- Bain believes PE is still best positioned for long-term success, but like always, business gets harder, participants must evolve, and the proactive players will continue to thrive while others will increasingly struggle.
Here’s how the developments we’re seeing at BluWave align with this report: We are seeing a massive shift towards value creation in private equity. As noted in our BluWave Index, PE Fund clients are using us to support value creation more than 60% of the time (ask us for a copy). Value creation is also increasingly being pulled into due diligence streams. PE funds are using BluWave to drive value creation insights during due diligence so they can acquire the company based upon what it could or should be versus what it is or is portrayed to be in the offering memorandum.
Click here to reference Bain’s 2020 report.