- February 14, 2023
- Posted by: Waldon Fenster
- Categories: Acquisitions, Private Equity, Trend
Private Equity Acquisitions: What To Watch Over the Next Five Years
Over the past decade, private equity (PE) activity has soared. Private equity firms are investing billions in companies around the world to gain operational control and benefit from increased profits. This surge in PE activity has left many investors wondering what lies ahead for this powerful industry. In this article, we’ll take a look at private equity acquisitions and explore what investors should watch out for over the next five years.
What Are Private Equity Acquisitions?
Private equity acquisitions refer to the purchase of a company’s shares by private investors, typically to gain majority ownership of the target company. Acquiring a company through private equity offers several advantages compared to traditional mergers and acquisitions (M&A). For example, private investors can quickly close deals while avoiding some of the regulatory hurdles associated with M&A such as tender offers and antitrust reviews. Additionally, PE firms are also often better positioned than individual investors to provide financial resources and expertise that can help companies succeed post-acquisition.
How Have PE Acquisitions Fared Over The Last Decade?
Since 2010, global PE acquisitions have grown steadily, reaching an all-time high in 2018 when over 6500 deals were recorded worldwide with a combined value of almost $1 trillion dollars. This trend continued into 2019 when another record-breaking year was registered with 6800 transactions worth $1.2 trillion dollars in combined value. On a regional basis, Europe continues to be one of biggest markets for private equity investments with more than 2000 deals worth $400 billion in 2019 alone. North America isn’t far behind though – 2020 saw an impressive number of 2300+ transactions valued at more than $500 billion across the US and Canada. Asia isn’t far off either; nearly 1600 deals were concluded there last year with a total transaction value exceeding $200 billion.
What Trends Should Investors Be Aware Of For The Next Five Years?
Throughout 2021 and beyond, it is likely that private equity acquisition activity will remain high as firms continue to seek new opportunities in an increasingly competitive market environment driven by low interest rates and rising valuations for target companies. However, there are some key trends that investors should be aware of over the next five years which could potentially affect their strategy or approach when analyzing potential targets for acquisition:
- Increasing Role Of Technology: Technology is becoming increasingly important for acquiring companies due to its ability to help firms identify potential targets faster and more accurately than ever before. Additionally, technology can also streamline complex processes such as diligence or valuation after a deal is closed which leads to reduced complexity and cost savings for buyers even before operations begin under new ownership.
- Rise Of Strategic Buyers: As competition increases among traditional buyers such as financial sponsors or venture capital firms, strategic buyers like corporate acquirers are becoming more active too – particularly those looking to expand their offerings via bolt-on deals or acquire complementary assets rather than going down the traditional path of buying stand-alone businesses outright..
- Emergence Of Activist Funds: Activist funds have become much more prevalent lately which can present unique opportunities but also poses risks if they are not properly managed by target companies during negotiations leading up to any proposed sale or merger agreement..
- Increased Focus On ESG Factors: Over recent years there has been increased focus on Environmental Social Governance (ESG) factors when evaluating potential targets as well as varying compliance standards from different jurisdictions meaning buyers may have difficulty predicting how regulations might change over time impacting their returns long term so must factor these considerations into their due diligence process accordingly..
Private equity continues to offer unprecedented opportunities for educated investors who understand both current trends and evolving patterns within this ever changing industry space effectively enough so they can make informed decisions about which targets make sense based upon risk versus reward profiles desired end outcomes involved.. With all these thoughts in mind hopefully this article provides readers useful insights intended gauge how next five years look in regards private equity acquisitions space globally!
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