Market Conditions Providing Opportunities in Private Equity

September 2, 2010 ( - Market conditions are now providing opportunities for private equity managers and their investors in selective areas of the market, according to new research from Towers Watson.

The research asserts that portfolio company operating performance is stabilizing, pricing for new deals is becoming more compelling from a buyer’s perspective, and financing packages are increasingly available for the right businesses. According to a press release, the research report references the widely stated relationship between historic periods of economic contraction and strong vintage year performance in private equity; however, it urges caution about the sustainability of this relationship, citing the significant capital overhang as a potential obstacle to the pattern repeating itself.   

Towers Watson emphasizes that a period of anemic GDP growth in developed markets will give those managers who are able to genuinely add value to their portfolio companies the opportunity to generate significant outperformance above equity market returns. It also draws attention to those managers that can drive significant operating margin improvements, and those that can build market leaders in niche pockets of growth as being particularly well positioned in this environment.  

“So while private equity is facing some significant headwinds that require the industry to take stock and evolve, we continue to be positive about some niches within private equity – turnaround managers, small- and mid-market buyouts and emerging markets – all of which can benefit from a depressed pricing environment and are less reliant on leverage to complete transactions,” said Mark Calnan, global head of private equity research at Towers Watson, in the announcement.  

The research report, “Private equity – emerging from the crisis,” includes sections on funds of funds, venture capital, and profiting from distress, and also explores six markets: United Kingdom, France, Germany, Nordics, Australia, and Asia.  

It can be downloaded from here.