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private equity career

Strategic Buyers Impact the Private Equity Landscape

September 3, 2012

The landscape in all investment classes is certainly changing due to the current global economic reality, so perhaps it is not a surprise that private equity firms are being pressured from unlikely sources. According to a report in the Canadian national newspaper The Globe and Mail, private equity firms are feeling that their investment opportunities are being squeezed more and more by stronger firms within target industries, who are now acquiring undervalued competitors.

Difficulty of acquiring market share is driving strategic purchases

Companies are increasingly finding it difficult to grow their market shares through traditional means due to difficult economic conditions in most developed markets worldwide. Instead of investing in marketing or product development, many companies are finding it more effective to purchase undervalued peers in order to access additional market share and add related product lines. The competition in acquiring undervalued companies is making acquisitions more difficult for private equity firms, especially when the competition can benefit from synergies and may be motivated by more than just return on investment potential.

Strategic Buyers may be willing to pay more than what can be justified by private equity firms

Private equity firms acquire undervalued companies with the intention of achieving certain return on investment hurdles when they restructure and sell the company in the future. When a strategic buyer within the same industry is examining a firm for acquisition, return on investment hurdles can also include operational synergies, the value of new technology to their existing product lines or the elimination of competition within the industry. These factors encourage strategic buyers to sometimes pay a premium in excess of what a private equity firm could afford within their required return hurdles.

What this means for job seekers

While this may sound like negative news for those interested in working in private equity, it may actually mean that private equity firms will need to add resources in order to be faster to react to potential deals in industries that are under such pressures. The other side of the equation is of course that many corporations may be looking for individuals with private equity experience in order to evaluate potential acquisitions. Such corporate finance activities may not be common occurrences for many companies, and existing internal resources may be limited. As with many occupations, being flexible and willing to adapt to such changes in market dynamics will be critical to success in the uncertain economic times we face today.

 

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Private Equity Firms in China Stumble

August 20, 2012

China Daily is reporting the Chinese venture capital and private equity industry has hit a major stumbling block as Asian economic growth grinds lower. While stories of an economic slowdown in China have been rather frequent over the last few months, this is among the first indications that investment is actually declining in what remains one of the largest capital markets in the world in terms of new allocations.

The level of capital raised by Chinese focused private equity firms in the first half of 2012 fell dramatically, down to only $8.6 billion from $37.5 billion in the first half of 2011.  The number of investments undertaken by private equity firms saw a similar decline, falling to only 653 investments from 1,105 in the same 2011 period.

Manufacturing investment down, health care and internet ventures up

One of China’s largest export markets is Europe, and economic troubles there have put a damper on investment in new manufacturing facilities and other elements of the consumer goods industry. While investments in this sector have fallen sharply, health care related ventures have been the primary target of traditional private equity firms. Twenty-three deals occurred in this sector during the first half of the year.

In the higher risk venture capital segment of the private equity world, internet ventures received the most attention with 72 investment deals totaling $471 million. Private equity firms are looking to cash in on search engines and social networking, which have yet to be fully saturated in China. This is a stark contrast to the United States and other western markets where Google and Facebook have a stranglehold on this market.

Financial scandal hits China

While Chinese firms continue to attract money from the United States and other western nations, investors are thinking twice about placing funds overseas after a series of financial scandals and fraud allegations have hit a number of Chinese firms. One example is Sino-Forest, a Chinese forestry products company, which has been accused of a billion dollar fraud by the Ontario Securities Commission in Canada.

China’s success hinges on European response

Those that are considering looking for employment in the private equity sector may need to think twice about previously exciting China or Asia focused funds. The outlook in this region of the world hinges on the success of European leaders in dealing with their debt situation and subsequently restarting consumer demand. The failure of European governments to effectively deal with their economic issues will impact other Chinese markets as well, most importantly the United States. Whether the statistics from China are the first indicator of a decline in overall private equity activity remains to be seen.  The economic data from China to be released in the coming months will be important in determining the direction of employment and future growth opportunities in the private equity sector.

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Breaking Into Private Equity

August 16, 2012

Public History on Private Equity

According to the most recent Global Alternatives Survey by Towers Watson, private equity managers currently control 22 percent of the alternative investments market.  This puts them in a strong position, behind the big leader, real estate, at 35 percent, but ahead of hedge funds, which control 21 percent of the market.

While most private equity firms shared concerns at the beginning of 2012, conditions are markedly better 7 months in. Recently, leading PE consultant Bain & Company released their Global Private Equity Report 2012 which explores and outlines the current state of the PE market. While 2011 presented some adverse market conditions 2012 has, lately, shown some very positive ones.

Of course, the market is still in transition.  Before the 2008 financial crisis, PE firms benefited from highly liquid leveraged loan markets, which broadened intra-firm strategy options and allowed for optimized returns.  All of this came to a halt after the crisis with little sign that those levels would be seen again.  As such credit is still hard to come by relative to 2007, with some lenders withdrawing from the PE market entirely.  On the other end, the initial public offering market is stunted by its private equity dependence, which discourages fund managers from getting involved entirely.  The fact that an IPO like Facebook’s can flop has caused a general air of caution in the market. Still, as early as 2010, the value and volume of European buyouts started to increase and initial public offering markets are still cautiously taking on larger assets with proven sales and revenue.

More dangerous is that private equity investments take place in a few privileged firms, which in some cases have their own distinct hiring rings you may or may not be a part of. Sixty-eight percent of all capital invested in private equity goes to the top ten private equity managers.  More importantly, the Towers Watson survey points out that most of this money is held by North American managers rather than those in other parts of the world.

Slim Pickings

What we see then is that, even though there’s slow growth in private equity, it’s consumed by a few big firms which means even fewer job opportunities.  Why?   Part of synergy in big business requires cutting back redundant staffing, so increased unemployment happens not only as small companies shrink, but also as big companies grow.  As such, senior analysts become junior analysts, and eventually those fired are looking for new jobs – usually another step down the ladder.

Although it is slow right now breaking into private equity is possible.  As always, show your strengths and your industry specializations, and give the employer something unique that puts you in the best position to analyze that industry.  Good luck!

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How is the Economy Affecting the Private Equity Manager’s Life?

August 6, 2012

Private equity professionals typically spend their day evaluating various businesses and investment strategies, such as judging potential gains and losses to certain growth companies, assessing the possibility of leveraged buyouts, and gauging upside and downside risks associated with potential venture capital investments. Private equity managers do a lot of the same things that hedge fund […]

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Private Equity Off to a Strong Start in 2012

July 16, 2012

According to Dow Jones LP Source, both U.S. and Europe based private equity funds saw strong support from Limited Partners in what was the best half for private equity fundraising since 2008. American private equity managers managed to raise $86 billion in new money in the first half of 2012, while their European counterparts gained […]

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Private Equity Opportunity Driven by Access to High Yield Debt Markets

June 11, 2012

One of the key factors in the attractiveness of private equity investments it the cost of leverage that firms use to boost equity holder returns. Generally, private equity firms use a combination of senior bank debt (or bank credit facilities), senior bonds and subordinated (mezzanine) debt in order to increase leverage in their investments over […]

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Helping Woman and Minorities Find Private Equity Jobs

November 2, 2009

Carlyle Group, the giant global private equity firm with over $86 billion of assets under management, is taking steps to attract more women and minorities into the private equity industry. The firm has teamed up with The Robert Toigo Foundation to create an MBA fellowship program which includes time working at Carlyle, and experience with […]

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A Private Equity Giant Every Job Seeker Should Study

October 19, 2009

This week marked the sudden passing of Bruce Wasserstein, one of the world’s most successful private equity investors and richest men. Wasserstein, 61, died of heart-related complications in a New York Hospital. Wasserstein worked on deals valued at more than $250 billion during his 32-year career in finance. His hardball tactics were immortalized in the […]

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Carlyle Head Sees Private Equity Getting Stronger

October 5, 2009

David Rubenstein, co-founder of the Carlyle Group, expects the private equity industry to come roaring back even stronger than it was when we finally pull out of this recession. And that could be good news for private equity job seekers. Speaking with Bloomberg Television, Rubenstein admitted that Carlyle, the world’s second largest private equity firm, […]

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Compensation May Change for Private Equity Jobs

September 28, 2009

Many private equity firms grew too large and were overpaid at the peak of the economic boom, and that’s going to lead to structural changes in the industry. So says private equity manager Guy Hands in a recent interview with the New York Times. Hands is well known for his own unfortunate $4.73 billion purchase […]

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