SBOs to dominate dealflow next year

It is not surprising that volatile markets and a possible double-dip recession have had a notable impact on the private equity industry. According to Grant Thornton's Global Private Equity Report, the industry is facing many challenges, ranging from a moe competitive landscape to increasingly risk-averse attitudes among LPs.

The survey-based report shows that respondents identified macroeconomic conditions as the most crucial challenge to the private equity industry, followed by regulation and competition. These issues are likely to affect dealflow and potential trade buyers, pushing the number of secondary buyouts once more.

"Considering the EU crisis, things will get harder before they get better" says Martin Goddard of Grant Thornton.

Goddard, global service line leader for transactions, stresses that the prevalent model of private equity houses must adjust to economic conditions to survive. That includes a more rigorous knowledge of the assets considered and of niche markets, but also attention to investors' needs.

"You can't underestimate the influence LPs are having now. That is an enormous force of change."

In terms of deal types, the report shows that, remarkably, the importance of secondary buyouts is valued higher in Western Europe than anywhere else. This is thought to be due to increased pressure for PE firms to divest to enable future fundraising, while counterparties are running out of places to put their money.

"If you put the demand for investment together with the demand for exits, it is a fairly logical solution," Says Goddard.

While trade buyers have been highly competitive in recent months, secondary activity will continue to be a driver in the industry.

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