GLOBAL PRIVATE EQUITY REPORT 2019 Bain amp Company

Global Private Equity Report 2019 Bain Amp Company-Free PDF

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About Bain Company s Private Equity business, Bain Company is the leading consulting partner to the private equity PE industry and its stake. holders PE consulting at Bain has grown eightfold over the past 15 years and now represents about. one quarter of the firm s global business We maintain a global network of more than 1 000 experienced. professionals serving PE clients Our practice is more than triple the size of the next largest consulting. company serving PE firms, Bain s work with PE firms spans fund types including buyout infrastructure real estate and debt We. also work with hedge funds as well as many of the most prominent institutional investors including. sovereign wealth funds pension funds endowments and family investment offices We support our. clients across a broad range of objectives, Deal generation We help develop differentiated investment theses and enhance deal flow by profiling. industries screening companies and devising a plan to approach targets. Due diligence We help support better deal decisions by performing integrated due diligence to assess. the market dynamics a target s competitive position and margin expansion opportunities and by. providing a post acquisition agenda, Immediate post acquisition We support the pursuit of rapid returns by developing a strategic value. creation plan for the acquired company leading workshops that align management with strategic pri. orities and directing focused initiatives or wholesale transformations. Ongoing value addition We help increase company value by supporting revenue enhancement and. cost reduction and by refreshing strategy, Exit We help ensure that funds maximize returns by identifying the optimal exit strategy preparing the.
selling documents and prequalifying buyers, Firm strategy and operations We help PE firms develop distinctive ways to achieve continued excel. lence by devising differentiated strategies maximizing investment capabilities developing sector. specialization and intelligence enhancing fund raising improving organizational design and deci. sion making and enlisting top talent, Institutional investor strategy We help institutional investors develop best in class investment programs. across asset classes including private equity infrastructure and real estate Topics we address cover. asset class allocation portfolio construction and manager selection governance and risk management. and organizational design and decision making We also help institutional investors expand their par. ticipation in private equity including through coinvestment and direct investing opportunities. Bain Company Inc,131 Dartmouth Street,Boston Massachusetts 02116 USA. Tel 1 617 572 2000,Global Private Equity Report 2019. The beginning of the rest of the story pg 1, 1 The private equity market in 2018 What happened pg 3.
Investments More strength same challenges pg 3, Spotlight on China Navigating the new economy pg 13. Exits Strategic buyers keep the party going pg 17,Fund raising The capital continues to flow pg 21. Spotlight on GP equity stakes Will the bonanza continue pg 27. Returns Despite a drop PE still outperforms pg 32,Key takeaways pg 36. 2 What s happening now The strategies shaping private equity. in 2019 and beyond pg 37, Buy and build Powerful strategy hard to pull off pg 37. Merger integration Stepping up to the challenge pg 46. Adjacency strategy Taking another shot at diversification pg 58. Advanced analytics Delivering quicker and better insights pg 67. 3 Private multiples are ascendant Is this the new normal pg 73. Global Private Equity Report 2019,Global Private Equity Report 2019.
The beginning of the rest of the story,Dear Colleague. The past five years have been ones of unprecedented success for the private equity industry During that. span more money has been raised invested and distributed back to investors than in any other period. in the industry s history Private investment in general and private equity in particular seems to be on a. secular penetration curve that has no end in sight Yet there are also some cautionary notes to sound. Returns while still strong relative to other asset classes have slowly declined toward public market aver. ages during the period Persistent high prices volatile capital markets US China trade arguments Brexit. worries and of course the ever present threat of recession have injected a sense of uncertainty that deal. makers dislike The pace of technological change is also increasing in almost every industry making it. harder to forecast winners and losers So while the good times are rolling some bells of worry are tolling. In this Bain s 10th anniversary Global Private Equity Report we look fearlessly at the industry s. strengths its challenges and the evolutionary path that lies ahead In addition to the critical statistics. that characterize PE industry performance you ll find our assessment of how to do buy and builds. properly and why this tactic is increasing in popularity Building on last year s assertion that PE firms. need to increase their 10 share of the approximately 40 000 M A deals done globally each year we. discuss how firms are building merger integration muscles to better compete with corporate buyers. and why the integration process should begin during due diligence We also take a hard look at adja. cency strategy 2 0 and the new wave of equity products that many PE firms are moving into aggres. sively hoping to find higher returns and more productive ways to invest capital at scale. In addition we zero in on exciting topics such as advanced analytics which speeds insight in both. diligence and post close value addition liquidity solutions for general partners and the Chinese PE. market which is on the leading edge in areas like technology. We close our 2019 review of important trends in private equity by getting out our crystal ball It s a bit. cloudy as is everyone s but we see fundamental shifts happening in capital markets that are likely. to drive a long term trend toward much larger private capital and private equity opportunities vs. traditional public equity models This ongoing movement will have seismic impacts for providers of. capital investors of that capital and for the companies owned by a widening variety of private models. It portends a future in which a much larger share of capital flows into private markets Perhaps this. is indeed the beginning of the rest of the story for the PE industry. Hugh MacArthur,Head of Global Private Equity,Global Private Equity Report 2019. Global Private Equity Report 2019,1 The private equity market in 2018 What happened. As the current economic expansion chugged into its ninth full year in 2018 the global private equity. PE industry continued to make deals find exits and raise capital at a historic five year pace Limited. partners LPs remain highly enthusiastic and have continued to flood the market with fresh capital. Keeping the momentum going however has hardly been easy. Chronically heavy competition has driven deal multiples to historic highs and growing jitters about. an eventual economic downturn are affecting decision making from diligence to exit planning For. general partners GPs putting record amounts of capital to work means getting comfortable with a. certain level of discomfort when investing They are paying prices they swore they would never pay. and looking to capture value that may prove elusive post close The most effective GPs are stepping. up their game to identify targets and sharpen diligence while simultaneously planning for the worst. In Sections 2 and 3 we ll explore several strategies firms are using to make the most of an increasingly. difficult market In the meantime here s what happened in 2018. Investments More strength same challenges, Amid heavy pressure to do deals the PE industry saw another impressive surge in investment value. in 2018 Fierce competition and rising asset prices continued to constrain deal count pushing down. the number of individual transactions by 13 to 2 936 worldwide but total buyout value jumped 10. to 582 billion including add on deals capping the strongest five year run in the industry s history. see Figure 1 1, While the current investment cycle hasn t been a steady upward march especially in terms of deal.
count it has shown great resilience and overall strength Every year since 2014 has produced higher. deal value than any year in the previous cycle with the exception of the peak in 2006 and 2007 Over. this period the industry has benefited from an unprecedented wave of investor interest buttressed. by ebullient equity markets low interest rates and steady GDP growth in the US and Europe For GPs. it has been a remarkable run, Predictably experts are debating how long the good times can last Only one other US recovery on. record from 1991 to 2001 has extended as long as this one While GDP growth in the West remains. strong US interest rates are rising as inflation picks up in the US and Europe Slowing growth in. China global trade tensions ongoing uncertainty about Brexit and year end market volatility are all. fueling concern that this cycle may be running its course. For PE firms however the question isn t so much when the next downturn will appear as how to nego. tiate it successfully when it does With record amounts of capital to invest it doesn t pay to sit idle trying. to time the downturn Instead GPs are finding ways to cope with a growing level of macro uncertainty. Global Private Equity Report 2019, Figure 1 1 Rising deal value in 2018 capped the strongest five year stretch in history while deal. count reflected stiff competition and rising asset prices. Global buyout deal value including add on deals Deal count. 1 000B 5 000,800 4 000 CAGR,Total count 13,600 3 000 Rest of world 53. Asia Pacific 4,400 2 000 Europe 9,North America 22. 1996 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18. Add on count 9 17 25 25 27 33 29 27 28 29 29 33 36 36 37 41 40 40 45 48 48 49 42. percentage, Add on value 14 16 16 15 20 16 8 11 12 17 10 11 13 21 12 25 21 14 31 43 21 24 23.
percentage, Notes Excludes loan to own transactions and acquisitions of bankrupt assets based on announcement date includes announced deals that are completed or. pending with data subject to change geography based on target s location. Source Dealogic, and planning carefully for how they can profit from the downturn With the global financial crisis. fresh in their memories firms are focusing their diligence much more intently on downside scenarios. this time around They learned valuable lessons during the crisis about what holds up well through. the cycle or not and are adjusting accordingly Even within a sector like healthcare widely viewed. as recession resistant there were subsector differences in performance worth noting Healthcare. support services for instance produced multiples of better than two times invested capital while. healthcare equipment and pharmaceuticals fared less well according to CEPRES a digital investment. platform and transactional network for the private capital markets see Figure 1 2. Spotting pockets of opportunity has been a challenge even in the up cycle For GPs finding the right. asset at the right price was the biggest constraint on doing deals in 2018 That helps explain why the. number of transactions has remained stubbornly flat bouncing around between 3 000 and 4 000. buyouts per year since 2010 Indeed despite the industry s impressive showing over the last five years. it has failed to carve out a larger share of the global market for mergers and acquisitions which has. hovered around 40 000 transactions per year for a decade see Figure 1 3. When asked what most gets in the way of closing more deals GPs cite the same challenges they have. faced for years high deal multiples a dearth of attractive targets and stiff competition see Figure 1 4. GPs are clearly hungry to do more deals but when they find attractive assets they consistently en. counter aggressive corporate buyers willing to push up auction prices These buyers are strategic. Global Private Equity Report 2019, Figure 1 2 Returns during the global financial crisis were all over the map between sectors and. within sectors, Global buyout equity capital invested by sector and subsector 2006 08. Miscellaneous Miscellaneous Misc Misc,Pharma and Misc.
Transportation services Specialized consumer services Internet biotech. Natural resources energy equipment Food and beverages. 80 and services Miscellaneous,Healthcare,Semi facilities Banks. Construction conductors,Travel and leisure,General industrials Insur Telecom. Other tech Healthcare,ance infrastructure,Natural resources. Chemicals Retail infrastructure,20 Healthcare Services Telecom. Software support equipment, Business support services Media services and services.
Industrials Consumer Technology Health Financial Other. care services, Gross pooled MOIC Less than 1 0x 1 0x 1 5x 1 5x 2 0x 2 0x 2 5x Greater than 2 5x Unavailable. Notes Includes realized and unrealized buyout deals with invested equity capital of 50 million or more and initial investment between January 1 2006 and. December 31 2008 MOIC stands for multiple of invested capital. Source CEPRES PE Analyzer, Figure 1 3 Private equity is not increasing its share of the total market for mergers and acquisitions. In this Bain s 10th anniversary Global Private Equity Report we look fearlessly at the industry s strengths its challenges and the evolutionary path that lies ahead In addition to the critical statistics that characterize PE industry performance you ll find our assessment of how to do buy and builds properly and why this tactic is increasing in popularity Building on last

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