Private equity investment to rise in 2016, study finds

According to new research, investment in private equity is tipped to grow over the course of 2016, alongside a high level of deal flow.

The recent survey was carried out by ACG New York, the biggest association for middle market dealmaking professionals in the city. The survey questioned 142 professionals about private equity investment predictions and found that the vast majority – 83 per cent – expected investments into this asset class to far outperform the
S&P 500 over the course of this year.

David Hellier, ACG New York board member and partner at Bertram Capital, told Forbes: “Middle market private equity firms are increasingly focused on value creation strategies to improve business performance in their investments, as opposed to the more traditional leveraged buyout approach.

"In spite of a frothy M&A market and significant dry powder, this transition is allowing private equity firms to build more meaningful businesses sought after by both strategic and financial buyers. The shift from financial engineering to value creation is enabling private equity to continue to deliver superior returns to the S&P 500."

As well as suggesting strong growth in the private equity investment arena, the research also showed that a strong deal flow looked likely. Sixty-six per cent of survey respondents reported that they believed that the overall transaction volume for investments of this genre would rise over the course of 2016, with a host of reasons given for this belief.

“Based on the deal sourcing performance Bertram Capital saw in the second half of 2015 and direct feedback from a broad spectrum of investment banks on strong pitch activity, we expect to see not only strong deal flow, but more actionable deal flow moving into 2016. We are seeing more family and founder owned businesses coming to market, which is a good indicator of the strength of the M&A market,” Mr Hellier went on to say.

“We are also seeing how the recent strong fundraising environment and resulting need to put capital to work is driving transaction volume. The middle market has become highly efficient, driven by a host of investment banks nationwide to develop and market deal, ample capital from both private equity and lenders and sellers willing to test the water in this frothy environment, all of which will drive increased transaction activity in 2016.”

The survey also showed that 62 per cent of those individuals questioned for the survey thought that family offices will have a far more major impact on the overall level of transaction activity this year. Family offices have long been interested in private equity investment and have been solid investors – something that looks set only to grow.

Martin Okner, chairman of ACG New York and managing director at the Merchant Banking and Advisory firm SHM Corporate Navigators, told the publication: “In the current market environment, the supply of capital continues to exceed the supply of quality deals. Therefore, funds and families are now finding that they need to market themselves more aggressively and look at companies that may need operational, financial, marketing, and channel development."

Mr Okner explained why family offices have a number of positive advantages when it comes to investing into the private equity arena. As well as having the flexibility to provide either debt or equity as direct investors or co-investment partners, they are also able to leverage the investment to provide favourable tax advantages as part of their wealth succession plan.

Over the course of 2016, investors considering entering the private equity sphere will increasingly realise the importance of the asset class as a standalone, outside of classic fund structures. The value of online tools for both investors and fund managers will also be placed into the spotlight, as will strategic advisory services, as the investment landscape continues to diversify and expand.

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