PE Global Capital Confidence Barometer

October 2012–April 2013

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Our third PE Global Capital Confidence Barometer offers a mixed forecast. Although investors see little prospect of improvement in the global (and their local) economy, there are clear signs of optimism regarding fund-raising, credit availability and their ability to grow portfolio companies.

The coming months will see PE firms continue to adapt as the market wavers. Winners will persist in raising new funds, acquiring good businesses and adopting strategies to grow and ultimately exit their existing portfolio companies.

Key findings

  • 77% of PE firms see no improvement in the global economy
  • 75% expect fundraising to be the same or better, despite the economy
  • Most firms believe the availability of credit is stable
  • Nearly half plan to pursue acquisitions
  • 47% plan to increase jobs in portfolio companies
  • 43% expect increased exit activity

Economic outlook

PE investors are less optimistic about the global economy than they were six months ago. Only a quarter (23%) believe that the global economy is improving, down from 46% in April. The number saying that the economy is declining has increased to 35% from 17%.

Most PE firms (89%) and companies (85%) expect the current global economic landscape to persist for up to two years.

How long does your organization expect the global economic downturn to last?

How long does your organization expect the global economic downturn to last?

Fund-raising

Fully three-quarters of general partners say the fund-raising environment will improve or remain the same globally over the coming year, a heartening show of optimism in the face of the overall economic environment.

What is your outlook on conditions in the fund-raising market over the next 12 months?

What is your outlook on conditions in the fund-raising market over the next 12 months?

M&A outlook

PE firms continue to report that credit remains available for transactions. Half of investors (49%) believe that they will be able to fund deals with 35% or less of equity over the next 12 months. The availability of credit, combined with billions in unspent capital, is giving PE firms a strong urge to invest.

On the downside for PE, corporations appear to have less appetite for acquisitions and divestments. Just one-quarter of corporate respondents expect to pursue acquisitions in the next year, down from 43% a year ago. The result will be less deal flow for PE from corporate carve-outs and a significant slowdown in a key exit route for PE.

Value creation

PE firms plan to pull all the levers to increase profitability of portfolio companies, looking at both organic and inorganic growth opportunities. To support this focus, nearly half of PE firms plan to recruit more staff for their portfolio companies over the coming year. Also, operating partners and in-house portfolio management teams have become key enablers in PE firms’ quest for growth.

PE exits

Over 40% of PE firms in all regions anticipate selling more assets (in terms of value) over the next 12 months. Respondents also believe that the secondary market — exits to other PE firms — will see a significant increase in the coming year.

(Check out the full PE Global Capital Confidence Barometer to see our assessment of which aspects of exit preparation make the biggest impact.)

Growth in Russia

Several factors are driving PE’s interest in Russia. An emerging middle class is driving strong domestic consumer spending. Unemployment has been falling since 1999, and the country has a well-educated and cost-competitive workforce. Also, the telecommunications infrastructure is well-developed, making a particular attraction for PE firms.

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