PE Exchange panellists map out road to success for 2016

José Rojo
04 December 2015

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A sectorial approach, quick reaction times and stronger ties with management teams will be key strengths for private equity managers in 2016, according to panellists at the Private Equity Exchange conference in Paris. José Rojo reports

Joe Topley, a managing director at investment advisory StepStone, told conference participants at the Private Equity Exchange in Paris yesterday that his firm prioritises fund managers with a sectorial focus as they speak the same language as management teams and are thus better equipped to track down assets in each segment.

Although approved by fellow panellists, Topley's remarks were met with scepticism by Stanislas Cuny, managing partner of French SME-focused GP Amundi Private Equity Funds: "Sector-focused investment is dead in private equity; the new name of the game is mega-trends that impact businesses regardless of the sector they operate in."

Cuny mentioned technology, demographics, globalisation, environment and social change as key trends and stated Amundi employs dedicated professionals for each. Svetoslav Stefanov, investment manager at CEE-focused 3TS Capital Partners also highlighted technology as a cross-border driver within private equity: "Technology is an enabler and disrupter in the way private equity does business; it opens up tremendous opportunities in segments that might not have been considered technological until now."

The panelists predicted investors will favour technology segments such as big data, smart city solutions and security in 2016. According to StepStone's Topley, another highlight for the coming year will be the healthcare industry, with national champions growing across Europe thanks to eased-up regulation. The speakers warned of political instability during 2016 and cautioned against forays in the printing sector and macro-dependent consumer assets.

Juan Luis Ramírez, founding partner of Spanish VC outfit Portobello Capital, urged investors to consider the potential of the Spanish SME-heavy market where, he claimed, limited competition has resulted in lower multiples than elsewhere in Europe. In line with a recent slump in LP enthusiasm for Spanish funds, StepStone's Topley advised prudence: "In recent years, Spain went from raising no capital to hitting more than €1bn. There is a concern about people having jumped on the bandwagon here."

Quick off the line
As private equity's chase for quality asset picks up speed, conference speakers called for the industry to keep nimble feet. "With such high prices, a GP has to be agile, avoiding deals that go through intermediaries such as Lazard and Rothschild," said Amundi's Cuny.

The sentiment was mirrored by Eric Hamou, DC Advisory's co-CEO in France: "Against previous periods, what has changed today is the point of velocity. Today, we are seeing more pre-emptive deals, more managers positioning themselves ahead of the curve and trying to strike bilateral transactions before the process has even started."

As the availability of cheap debt turns financing into a non-issue, what cards remain for a GP to stay ahead of the competition? According to Henri Pieyre de Mandiargues, a partner at legal firm McDermott Will & Emery, the ability to cope with ever-cumbersome legal documentation and partner ahead with management teams is key: "It is all about GPs reaching out to them, offering them a partnership with flexible governance terms and accommodating to their business plan."

For EQT chair Conni Jonsson, it is as much about alignment of interest as it is about empowerment: "Private equity is a glorified headhunting business. Our main job is to make sure the right people are holding the reins of each situation and to empower them. To succeed, our industry must think more as owners than investors."

Eric Bismuth, CEO of French GP Montefiore Investment, was the dissenting voice amid calls for a quick-footed private equity industry: "We actually want the opposite of velocity. Of all the deals we work on, 80% are primary; many of these companies are new to the industry and it takes a while to understand the fundamentals behind the company and its management team."