How today’s economic rebalancing is impacting PE

In this episode, the speakers discuss how macroeconomic factors such as inflation, monetary policy, and the labor shortage will impact PE investment decisions and theses.

Related topics Private equity

The global economy is slowing yet inflation is rising, an unusual combination reminiscent of the 1970s when high inflation was exacerbated by an energy price shock. Inflationary pressures are rising worldwide due to fiscal stimulus in the US, energy prices in Europe, and supply constraints in Asia. Commodities prices are rising and so are consumer prices, creating a dilemma for businesses as to whether they should pass on higher costs to consumers or take a hit on their margins to preserve market share.

Talent will be worth a lot in the coming years as the global economy rebalances and establishes a “new normal.” The ongoing labor shortage is inspiring employees to leverage their increased bargaining power to secure higher salaries, better employment terms, richer benefits, and greater work flexibility. In turn, businesses are seeking to offset rising input costs and higher labor costs with digitization and automation. When evaluating the potential of a business, PE investors are factoring in whether companies have the right talent mix to face such an uncertain environment.

The US Federal Reserve is expected to tighten monetary policy rapidly by raising interest rates and shrinking the size of its balance sheet to regain control of inflation. This will have both negative and positive implications for PE: while the rising cost of credit will make capital more expensive, there will also be less competition for deals which could lead to downward pressure on valuations.

These seven gauges will indicate how much PE activity will take place in the coming year:

  1. The positioning of a company in its sector
  2. Whether the sector is positively or negatively impacted by inflation
  3. How much pricing power does a company has
  4. A company’s ability to pass on higher input and labor costs
  5. The price at which a company is acquired considering the higher cost of credit due to higher interest rates
  6. How resilient a company is in this economic environment
  7. The long-term value potential of a company and the type of value it brings

For your convenience, full text transcript of this podcast is also available. Read the transcript.

Presenters

Gregory Daco
EY-Parthenon Chief Economist, Strategy and Transactions, Ernst & Young LLP
Winna Brown
EY Americas Financial Accounting Advisory Services Private Equity Leader

Podcast

Episode 48

Duration 23m 00s

In this series

series overview
(Event List - Manual)

How today’s economic rebalancing is impacting PE

In this episode, the speakers discuss how macroeconomic factors such as inflation, monetary policy, and the labor shortage will impact PE investment decisions and theses.
Podcast

Episode 48

Duration
23m 00s

Presenters

Gregory Daco

EY-Parthenon Chief Economist, Strategy and Transactions, Ernst & Young LLP

Winna Brown

EY Americas Financial Accounting Advisory Services Private Equity Leader

PE Pulse: Five takeaways from 1Q 2022

In this episode, Pete Witte, EY Global Private Equity Lead Analyst, explores the key themes and market dynamics from 1Q 2022 that are top of mind for PE investors.
Podcast

Episode 47

Duration
10m 00s

Presenters

Winna Brown

EY Americas Financial Accounting Advisory Services Private Equity Leader

What PE is outsourcing to create value

In this episode, the speakers discuss what tasks PE is outsourcing across business functions such as finance, IT, HR and customer service to create value.
Podcast

Episode 46

Duration
20m 33s

Presenters

Gregory W. Schooley

EY-Parthenon US Value Creation Leader; Principal, Ernst & Young LLP

Winna Brown

EY Americas Financial Accounting Advisory Services Private Equity Leader

How PE can use the ‘See, Solve, Scale’ process to screen investments

In this episode, our speakers explore how Professor Danny Warshay’s “See, Solve, Scale” entrepreneurial process can help PE investors screen potential investments.
Podcast

Episode 45

Duration
23m 00s

Presenters

Winna Brown

EY Americas Financial Accounting Advisory Services Private Equity Leader

Why mentoring matters for women in PE

In this episode, our speakers reveal how mentorship programs can help women build long-term careers in PE.
Podcast

Episode 44

Duration
26m 00s

Presenters

Winna Brown

EY Americas Financial Accounting Advisory Services Private Equity Leader

How PE firms can win tech deals

In this episode, our speakers explore how PE firms can position themselves to win tech deals in today’s highly competitive market.
Podcast

Episode 43

Duration
25m 00s

Presenters

Winna Brown

EY Americas Financial Accounting Advisory Services Private Equity Leader

Jeff Vogel

EY-Parthenon Principal, Strategy and Transactions, Ernst & Young LLP; EY Global Head of Software Strategy Group

PE Pulse: Five takeaways from 4Q 2021

In this episode, Pete Witte, EY Global Private Equity Lead Analyst, explores the key themes and market dynamics from 4Q 2021 that are top of mind for PE investors.
Podcast

Episode 42

Duration
08m 50s

Presenters

What AI has done for Hg

In this episode, our speakers explore how Hg’s philosophy of curiosity and experimentation has enabled it to become one of the most active technology investors in the world.
Podcast

Episode 41

Duration
22m 00s

Presenters

Winna Brown

EY Americas Financial Accounting Advisory Services Private Equity Leader