Ask an industry insider what their biggest concern for private equity is right now and they’ll likely give you this answer: soaring entry valuations.
The first half of 2017 has seen both the largest-ever European fund – the colossal €16 billion CVC Capital Partners VII – and the largest-ever pan-Asian fund – the $9.3 billion KKR Asian Fund III – close successfully. In Q1 the average private equity fund size reached $760 million according to PEI data, and in the first two months of 2017 the global median EV/EBITDA multiple paid by private equity for businesses leapt to 7.5x from 6.3x in the last quarter of 2016, according to PitchBook.
Limited partners have raised concerns about too much dry powder in certain regions and the challenge for managers of putting that money to work. But if you’re a private equity fund, sitting on your hands and waiting for the market to cool off isn’t really an option – especially with all this money you’ve just raised.
So pay up you must; but as one member of our Germany roundtable earlier this month said: “If you give up some of the upside by paying a high price, you’d better run faster.”
It’s long been understood by the industry that true operational improvement rather than market timing or financial engineering is the way to, if not guarantee, at least vastly increase the chances of a solid return.
As Blackstone chairman Gerry Murphy told delegates at the Listed Private Equity Conference 2017 in London last week: “We don’t make any money in this business unless we sell better companies than the ones we bought,” showing slides demonstrating that in Blackstone Funds III through VI, excluding energy investments, two-thirds of total value creation in portfolio companies came from EBITDA improvement.
We know GPs must work harder and harder to generate returns in an ever more volatile dealmaking environment. And we want to shine a light on those that are doing the best job through our Operational Excellence Awards.
Submissions are now open and will close on 4 August, 2017. (You can read about last year’s winners here)
Why you should enter
• Gain recognition from LPs as a best-in-class operator;
• Demonstrate your credentials as a potential partner to future management teams;
• Highlight and reward the work done by your internal operating teams.
Click here to enter online