Private equity funds are looking for new, creative value creation opportunities in light of the tougher market conditions, according to new data from global professional services firm Alvarez & Marsal.
According to the survey of nearly 200 private equity investors, almost two-thirds (63%) are looking for new routes to value creation. In addition, one-third (33%) say they are extending value creation plans as exits prove more difficult in a challenging environment. Despite subdued dealmaking activity, private equity investors still favour acquisitive strategies, with just a quarter (25%) choosing organic growth over M&A.
Private equity firms are also instilling a heightened sense of urgency to value creation activities. According to the survey, 74% of private equity executives prefer to launch their value creation programme either immediately following acquisition or in the first three to six months after the transaction.
The data also indicates that digital transformation is becoming increasingly important. The vast majority (84%) of respondents see digital infrastructure as critical for successful transformation projects, with half (49%) considering it from the very start of the value creation programme – a figure which has risen by 12% since 2022.
Automation, in particular, seems to be a focus for investors, with 43% looking to identify areas where technology can help to further automate the business.
Stephen Moon, Managing Director with Alvarez & Marsal’s Private Equity Performance Improvement team, commented: “Despite demonstrating extraordinary post-Covid resilience, the global private equity markets now face fresh challenges with soaring inflation, the war in Ukraine rattling supply chains and energy markets, and rising interest rates all causing significant headwinds for portfolio companies.”
“By revisiting value creation playbooks, private equity firms are responding promptly to these pressures and using all the performance improvement levers at their disposal to maintain growth. Digital transformation has emerged as a key enabler of successful value creation. The next 12 months will be critical for funds and their portfolio companies, as they seek to meet returns expectations in this volatile environment.”
